Everything You Need to Know About ScaleX Invest's Valuation Methods

In the world of tech investments, where innovation and market fluctuations are constant, accurately valuing portfolio holdings is a critical task for venture capital funds. At ScaleX Invest, we believe that no single valuation method can provide a complete and accurate view of a company’s worth. This is why we’ve developed a range of valuation methods and built a flexible platform that enables investors to monitor their portfolios, using multiple models to obtain the most accurate estimate of their assets’ value.

In this article, we’ll present the seven key valuation models available on the ScaleX Invest platform. These models offer a structured framework for determining fair value while helping investors meet regulatory guidelines, particularly those set by the IPEV (International Private Equity and Venture Capital Valuation). Each method has its advantages and limitations, which we’ll explore below.

1. Most Recent Post-Money Valuation

The most recent post-money valuation provides a clear and straightforward way to assess a company’s value based on its latest funding round. The strength of this method lies in its ability to reflect market sentiment at the time of the last investment. However, its simplicity can also be a limitation, as it doesn’t account for recent developments within the company, such as product evolution, revenue growth, or changes in market conditions.

2. Revenue Multiples Valuation

At ScaleX Invest, we rely on a unique database of over 1,000 private multiples, continuously updated to reflect the latest valuation trends in the venture capital ecosystem. Revenue multiples are particularly effective for valuing growth-phase tech companies, offering a simple and accessible way to compare a company’s value with that of its peers. Comparing similar companies—one of ScaleX's key platform features—allows investors to determine a company's market value. However, companies with heavy assets or long R&D cycles may be undervalued using this method, as their revenue may not yet reflect their future potential. This method also has limited applicability for early-stage companies with minimal commercial activity.

3. EBITDA Multiples Valuation

Widely used in private equity, EBITDA multiples are less applicable for many tech startups, which often report negative EBITDA. Despite this limitation, the method remains reliable for more mature tech companies or tech SMEs. The broad use of EBITDA multiples in private equity makes it a robust model for evaluating companies that have moved beyond the startup phase.

4. Valuation Benchmarking Against Listed Peers

While benchmarking against publicly listed peers may not always provide the most accurate valuation for startups, ScaleX Invest allows users to refine this approach by selecting the closest listed peers from a pre-curated sample, ensuring more relevant comparisons. This approach offers full transparency since the underlying data comes from public financials—a feature highly appreciated by auditors overseeing investment funds. However, the size disparity between public companies and startups often limits the accuracy of this method.

5. Historical Approach Valuation

ScaleX Invest’s historical approach valuation is an in-house method that uses a company’s most recent revenue multiple from its last funding round and adjusts it for current market conditions. This method applies a discount to the past multiple based on the company’s risk profile and market trends. It is particularly useful for adjusting valuations of companies that raised funds during valuation peaks, such as the 2020-2022 period. However, the drawback is that it requires access to private and detailed data from the last funding round, which may not always be available, limiting its applicability.

6. Discounted Cash Flow (DCF) Valuation

The DCF method calculates the present value of future cash flows, providing a comprehensive tool for evaluating a company’s long-term financial health. One of the main advantages of the DCF method is that it accounts for the entire cost structure of the company, including CAPEX, allowing investors to carefully assess growth, profitability, and cash flow assumptions. This method also aligns with private equity practices, making it easier to negotiate valuations during exit stages. However, the reliability of the DCF method diminishes when applied to startups, which often lack the historical data to build a business plan. Additionally, high-growth companies can experience unsustainable growth rates, making terminal value calculations challenging. The DCF method also doesn’t account for market trends or competitive positioning, potentially leading to valuations that overlook critical external factors.

7. Venture Capital (VC) Method

The VC method projects the future exit value of a company and discounts it based on risk and dilution assumptions. This method is widely accepted in the venture capital industry, offering a structured approach to estimating the potential value of early-stage companies. However, its reliance on projected revenues can be problematic, especially for pre-revenue companies, where revenue projections may be speculative and unreliable.

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Conclusion

At ScaleX Invest, we believe that no single valuation method can capture the full complexity of a tech company. By offering a variety of models, each with its strengths and limitations, our platform allows investors to adapt their valuation approach according to each company type.

Key Features of the ScaleX Tracker Platform:

• Access to a continuously updated database of over 1,000 private multiples
• Algorithms suggesting method weights, based on back-tested data
• Methods specifically developed for the tech sector
• Transparent and auditable valuation processes
• Compliance with IPEV guidelines, ensuring adherence to reporting standards

Discover how ScaleX Invest can help you optimise your portfolio valuation and take control of your analysis with the best tools available.