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METHODOLOGY

Business Valuation Technology Overview

InstaVal Business Valuation methodology uses a proprietary hybrid capability combining financial orthodoxy with machine learning. It is based on 4 valuation methods which are weighted-averaged out, using a proprietary scoring model to calculate the business fair market value.

Market Method

The appraisal value of an asset, based on the selling price of similar assets.

How it is calculated

Market Value = Weight Average Enterprise Value – Debt + Cash

  • Weight Average Enterprise Value = (Predicted EV/Sales Valuation Multiple * Current or Next Year Revenue * Weight) + (Predicted EV/EBIT Valuation Multiple *Current or Next Year EBIT * Weight)
  • The industry multiples used are initially pulled from listed stocks closing prices data feeders, then calculated using a proprietary machine learning formula which factors in the size bias and geography bias.

Income Method

Quantifies the present value of an anticipated future income generated by a business or an asset. Aka, the VC method.

How it is calculated

Income Value = Weight Average Entreprise Value – Debt + Cash – Funding

  • Weight Average Enterprise Value = (Predicted EV/Sales Valuation Multiple * Revenue within 2 years * Weight) + (Predicted EV/EBIT Valuation Multiple * EBIT within 2 years * Weight)
  • The industry multiples used are initially pulled from listed stocks closing prices data feeders, then restated using a proprietary machine learning formula which factors in size bias and geography bias.

Asset Method

It is literally the replacement cost of the business, i.e. a restatement of the company's balance sheet at market rates.

How it is calculated

Asset Value = Capitalized Invest Capital * Weight + Franchised Invested Capital * Weight + Cumulative Invested Capital * Weight + Last Funding Amount

This method is based on capturing all forms of Invested Capital into the company, recognizing bootstrapping effort over time and capitalizing it as an asset, at market rates.

Alternative Data Method

A predictive model, trained using machine learning technology to calculate the equity value of the company based on alternative non-financial data.

Qualitative Data such as market and industry tags, funding structure...

Quantitative Data such as Headcount, Number of funding rounds...

PreMoney Valuation

For all above mathematical formulae, weights derived from domain knowledge expertise and machine learning are assigned to all intra and inter valuation method parameters along the algorithm formulae.

How it is calculated

Pre Money Value = (Market Value * Weight) + (Income Value * Weight * Weight) + (Asset Value * Weight)+ (Alternative Data Value * Weight)

Last updated: April 2020

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