Startup valuation

What valuation is better? Cash flow multiple basis or IRR?

IRR takes into account those returns over time. In other words, a huge payout after a long period of years can work out to a lower IRR than smaller, but quicker, payouts that end up returning less cash overall to investors.

Superangels, like VCs, raise money from institutional investors called Limited Partners (LPs), like big banks, pension funds and university endowments. And these LPs don't just invest in venture funds, they invest over a very large range of asset classes, from the pedestrian (stocks, bonds) to the exotic, like private equity. LPs use IRR to compare the returns over all these different asset classes, and professional venture investors, whether traditional VC or superangels, need to have a better IRR than those other investments. Superangels with better IRRs can raise bigger funds and/or demand higher fees.

By focusing on the speed, and not just the size of the exits, superangel funds can give much better IRRs to their investors than most traditional VCs. (Paul Graham made that point here.)

And the macro environment favors this, too. Companies take forever to go public now which, all else being equal, will lower VCs' IRR. Meanwhile it's much easier for superangels to sell their stakes in big startups through secondary sales and/or DST-type deals.


Detail about startups market valuation http://znacomstva.blogspot.com/2011/04/vcs-has-largest-quarter-since-2001.html