Investor’s Guidebook III


In general, the valuation of an investment in a startup starts with the valuation of the startup itself, which generally does not differ from traditional company valuations, although there are a few approaches that will help you choose:

1.The simplest and most well-liked in Poland is a valuation based on EBITDA, or earnings before taxes and depreciation. For now, you can roughly think of EBITDA as annual net income.

So if the startup you are interested in has already generated €1 million in profit in the last year, then the most commonly used multiplier such as 4 can be used and this startup, can be valued at €1 million x 4 = 4 million.

The multiplier can vary of course and is affected by many objective factors such as startup stability, sales opportunities, etc.

If the startup sells you 25% of its company and you pay €1 million, the rest of the owners will get a total of 75% of the shares.

The valuation, based on EBITDA in Poland is applied to startups from traditional businesses, like chain stores or services.

The valuation is determined on the basis of the company’s efficiency in generating revenue while keeping costs low, which is a business regime appropriate for startups.

That’s because these startups typically grow very quickly and burn all their cash to grow even faster.

This means that they rarely make a profit in the first period, if at all. This was the case with the famous startup Uber or Linkedin.

2. Revenue-based valuation and growth-based valuation. In the startup world, it is much more common to calculate valuation based on revenue and growth.

To value a startup using this method, multiply its revenue by a ratio that depends on the market, and annual growth rate.

A startup growing at 40% per year might get a multiple of 6 to 10, while a company growing at 10% might only get a multiple of 1 or 2. High growth can really drive up the value!

For example

The startup you were interested in investing in did 2 mlo in revenue two years ago and 3 million last year. So your growth rate is 50%. In such cases we use a multiple of about 12. ,

So the startup, should be valued at 3 million x 12 = 36 million euros. From here it is easy to calculate what is the value of the shares you want to buy.

If you have received an offer to buy 0.1% of the shares for 300,000 euros, it turns out that for this money you will buy shares worth 360,000. 20% discount and pure profit for you.

3) How to calculate seed money for a startup that has not yet produced any financial results?

For this situation, Americans use Convertible Notes, which will secure the investment, like a kind of loan that can be converted into A shares, preferred and issued by the startup when both parties think it’s time.

CNs make it possible to postpone the question of valuation of a startup altogether, in its early stages, as valuation can sometimes be uncomfortable for the startup and the investor. This is usually the case at the beginning of the business, when it is not determined how much more money will have to be pulled from the market and how many shares in the company will have to be given to the next investors. Convertible Notes works a little bit like the concept of vesting, the parties (startup and investor) agree not to value the startup now because they will not agree on its value anyway, but when the startup develops and the value is about to skyrocket, then the parties will sit down and evaluate the value of the investor’s Series A shares. A valuation deferred into the future gives room to talk about specific amounts, but the investor for his initial investment in the startup has already reserved his own seat on the Supervisory Board maybe for 10% maybe for 20% of the shares, but he has. In addition, he will receive a margin for his investment contribution, e.g. 15% if he wanted to exit after a year with capital from the investment.

Instead of returning the loan with interest, the investor receives the preferred shares according to the rules described in the notary contract. The bonus written in the contract is based on two principles DISCOUNT and CAP. The first gives a premium in the form of a lower note-to-stock conversion price (at a discount from the A share issue price). Typically, 20 percent CAP is a cap on the maximum valuation at which the conversion can occur. If at issuance the valuation of the startup is higher than the CAP, you will be able to convert the Convertible Notes into shares at a lower valuation than this, determined by the CAP.

Although only recently used in Poland, investing in a startup through Convertible Notes, is more advantageous at an early stage and is not subject to the same fees as buying shares. Ready to use Convertible Notes are provided by incubators SAFE from Y Combinator or KISS from 500 Startups and you can find them in the attachment or on website.

Let’s assume that as an investor, you want to invest PLN 500k. You get a Convertible Note with a 20% discount and a valuation cap of PLN 5 million and an annual interest rate of 5%. When the Series A round takes place after one year, the valuation of the startup will be PLN 10 million. Assuming shares are sold at PLN 1 per share in the Series A round, you will buy shares at PLN 0.50 per share due to the valuation cap, so you will receive 1 million shares. The conversion discount does not apply because the valuation cap gave a lower share price than the discount. You also receive additional shares based on a 5% interest rate for 1 year for PLN 500,000 (25,000 shares). You get 1,025,000 shares for an early investment of £500,000.

There are also many startup valuation calculators present on the Internet. To our investor’s guide we should add: caycon calculator, srtupfalcon, dailyhostnews.

We hope that in our investor guide series, you will now be better prepared to value your investment in startups.

As a bonus for liking our investor guide series, we will send you a Convertible Note template by email which you can use as a base document for discussions with startups and lawyers.

You will receive it when you subscribe to our newsletters at





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