1] Project earnings (profit) 5 years from the time of investment (ex. $1 million)
2] Find the P/E ratio of the most relevant public benchmark company (ex. 10x)
3] Calculate your venture's potential exit value by multiplying your 5th year profit by the benchmark P/E ratio ($1 million x 10 = $10 million)
4] Estimate minimum investor return based upon venture stage and risk:Seed/start-up - 20x+ (most likely stage of investment for a new venture); Early stage - 10x; Growth stage - 5x; Near exit - 3x
5] Calculate your post-money valuation by dividing your exit value by required investor return ($10 million/20 = $500,000)
6] Estimate seed investment needed ($100,000)
7] Subtract the seed investment from your post-money valuation to calculate your pre-money valuation ($500,000 - $100,000 = $400,000; founders own 80%, investors own 20%)