How Do Investors Generally Estimate an Exit Valuation for a Startup

question 14

Multiple Choice

How do investors generally estimate an exit valuation for a startup technology venture?

• A) They add up all the sales over the course of five years, and that is the number.
• B) They add up all the profits over the course of five years, and that is the number.
• C) They look at the predicted balance sheet at year five and use the projected book value of the business as the number.
• D) They look at projected revenues at the end of year five and apply and industry standard multiple to that number based on recent mergers and acquisitions. Then they study the business financials to make sure the business model can generate operating profit.

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Definitions:

Critical Value

A critical value is a point on the distribution of a statistical test that marks the boundary of the rejection area for the null hypothesis, aiding in decision making regarding statistical significance.

Wilcoxon Rank Test

A nonparametric statistical test used to compare two related samples, to assess whether their population means ranks differ.

Nonparametric Tests

Statistical tests that do not assume a specific distribution for the data, making them appropriate for non-normal data distributions or ordinal and nominal data.

Preschool

An educational establishment or learning environment for children before they begin compulsory education at primary school.