Venture Capitalist (VC) Method

Venture capitalists are known for placing large bets in promising start-ups, hoping to exit the association with big fat gains. The VC reflects the view of an investor looking for a high exit to reward them for the risk taken initially. In order to estimate ROI based on limited information available on start-ups, Venture Capitalists developed something called the VC method.  

VC method is most commonly used in valuations of pre-investment valuation of pre-revenue ventures. It begins by projecting future revenues (i.e., five years from now), assigning trading multiple to estimated net profits based upon industry benchmarks, and then backing out the desired return for an investor.

This method can also be used to estimate the valuation of companies seeking Series A through C funding. For companies that have already made it past the seed stage, previous VC rounds will be used to determine the size of future investments.