What is the Risk Factor Summation Method?
The Risk-Factor-Summation method (RFS) is a rough valuation method for early-stage startups.
The RFS-method uses a base-value of a comparable startup for the valuation of your company. This base-value is then adjusted for 12 standard risk factors. This means you compare your startup to the other startup and assess whether you have higher or lower risk.
How does it work?
- You start with an average valuation for your company based on similar companies in your area and region.
- Then you assess the different risk factors for you own startup on a range from “very low” to “very high”.
- Lower risks increase the valuation for your company while higher risks decrease the valuation.
- Work on your risks and how to cover them to improve your valuation.
On our key2investors platform you can find an interactive tool that helps you to calculate the valuation of your startup based on the risk factor summation method.
When should you use it?
- The RFS method is used mostly for pre-revenue, pre-money startups.
- Many investors use more than one method for establishing valuation for startups and the Risk-Factor-Summation method is one of these methods.
- Challenge this valuation with the Venture Capital method, the Transaction Multiples Method and the Score-Card-Method (SCM). All these valuation methods are explained in detail on the key2investors platform.
Try it now for your own startup