Let's walk through an example of the VC method in more detail. The first steps are to determine or estimate the amount of capital investment needed.

Here we see an example where we've got our round of capital amounts or investment amounts of 25.

Secondly, we estimate the timing of an exit. Most VC funds will project in the five to seven year range, and here we can see step two is the exit year. We're going to go for three different scenarios. We're going to look at an exit year in year five and six and seven to see which is the best.

The third step is to forecast the startup's revenue projections for the time period until exit. Earlier stage startups may only have forecast revenues because EBITDA and other profit measures typically come at the later stage, and the VC funds will focus their valuation on revenues or a multiple of invested capital, such as price to book value.

VC funds may use the revenue projections provided by the startup company, however, they will often add various scenarios and develop alternative revenue forecast cases of their own.

It's worth being aware that whilst earlier stage startups may forecast revenues in EBITDA, typically EBITDA will only kick in at the A round or B round. In other words, EBITDA forecasts become more relevant for valuation at a later stage.

So let's have a look at some forecast revenues in step three. We've got three scenarios here. We're going to use a best case base case and low case revenue growth.

We've got the historical revenue for this company of 30, and we want to grow that, so I'm going to take the 20% from the best case and add that onto this best case, revenue 30 in the past.

Now I can copy that down and to the right and get my revenue figures for all three scenarios.

That now gives me the revenue figures.