Venture capital firms typically value startups using a variety of methods, including the discounted cash flow (DCF) method, the comparable company analysis method, and the precedent transaction method.
The DCF method involves estimating the future cash flows that the startup is expected to generate, and then discounting those cash flows to present value using a discount rate that reflects the level of risk associated with the company. This method allows venture capital firms to determine the intrinsic value of the startup based on its future financial performance.
The comparable company analysis method involves comparing the startup to other similar companies that have recently been acquired or have gone public, in order to determine a rough estimate of its value.
The precedent transaction method involves looking at the valuations of similar companies that have recently raised capital through venture funding rounds. This can help venture capital firms to determine a rough estimate of the value of the startup, based on how much other investors are willing to pay for similar companies.