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9 Startup Valuation Methods: 5 to Use, 4 to Avoid

Equidam

a 409A valuation in the US), planning exit strategies, and informing overall business planning. High failure rates are a stark reality in the startup world, adding another layer of risk that must be accounted for. Discount Rate (Cost of Equity): The rate used to discount future cash flows reflects the riskiness of the investment.

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Discount Rate—Explanation, Definition and Examples

Valutico

In DCF analysis, the Weighted Average Cost of Capital (WACC), representing the average return required by all stakeholders, is commonly used as the discount rate. The discount rate must be carefully chosen to reflect unique company risks and characteristics, and also changes in economic conditions.

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Discounted-Cash-Flow-Analysis: Your Complete Guide with Examples

Valutico

d is the discount rate (which is usually the weighted average cost of capital (WACC), r in our previous example). Ce = Cost of Equity. Rf = Risk-free Rate. Rm – Rf) = Equity Market Risk Premium. Cp = Cost of Equity Premium. And you need three numbers to do this. .

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Startup Valuation: The Ultimate Guide for Founders

Equidam

This de-risks the market adoption aspect. Essentially, all verifiable information about the company’s present serves to build credibility and reduce the perceived risk associated with achieving the projected future state. This premium rises when perceived market risk increases. [27] 2] [15] [17].