Valuation of start-up companies is highly subjective. It is rather art than science. Proper valuation of the entrepreneurial business is the seminal event in the corporate maturation process however and it becomes an absolute requisite when the entrepreneur wants to raise private or public capital. Once the company is properly valued, then the entrepreneur can determine how much of the company can be sold for the capital injection provided by the investor or venture capitalist. No matter how enthusiastic each party seems, it always comes down to valuation.

The  most common start-up business valuation approaches include:

1. Cost approach (uses the valuation information to restate the asset at fair market value)

2. Market approach (gathering data to value developing assets; uses actual market derived data, comparing and correlating subject company to market comparable)

3. Income approach (connects data to value of developing assets).

Nine typical ways to value a start up company are:

1. Sales multiple

2. Price-earning ratio

3. Free cash flow model

4. Book value

5. Liquidation value

6. Replacement value

7. Similar company transaction (comparable)

8. Internal transaction price

9. Discounted cash flow

See also:

Valuation Quantification Techniques, by Saratoga Venture Finance