Startup Words Wednesday: Pre-money Valuations, Unicorns, Acqui-hire…

startup

In this week’s Startup Words Wednesday we’re diving right in:  unicorns, pre-money valuations, and acqui-hire. Spoiler: “Acqui-hire” isn’t Aquaman’s sidekick and “Unicorns” isn’t the name of Pixar’s next tentpole movie.

Pre-Money Valuations

“The valuation placed on a company in a venture capital transaction, not including the amount of cash to be invested.”
-Investopedia.com

Determining a company’s pre-money valuation is often confusing. First-time entrepreneurs frequently come up with grandiose “pro forma” financial projections and use the discounted cash-flow method for developing their valuation. I would advise against this method as these projections are rarely accurate for seed-stage businesses. Veterans in the investment community will suggest that you use a mix of different methods for valuing your business rather than just one. It also helps to conduct a competitive analysis and figure out what similar companies have raised. Here’s a list of commonly used valuation methods:

Acqui-hire

“Acqhire is a neologism created from a combination of the words acquire and hire that is used to refer to one company’s acquisition of another in order to gain talented employees.”
-Techopedia.com

In other words, large tech companies often acquire other micro-businesses just in order to hire its team. Rex Hammock coined the term back in 2005 jokingly describing why Google purchased the company DodgeBall.com. This trend inacquisition strategy has slowed since.

Unicorns

“A magical designer that can solve all [of a company’s] problems”
-TheNextWeb

This term is often applied to designers that are also multi-talented front-end developers. These types designers are in short supply. I suppose we could just as easily call them leprechauns, granting us wishes to accomplish our greatest desires, but it’s not as endearing.

Edit: One of our readers astutely pointed out the more popular use of this term. Another reason to not blog and post too quickly!

“Private companies valued at $1 billion or more.”
-Fortune

Please leave a comment if you would like to see any other terms on Startup Words Wednesday!

 

{ 4 comments… add one }

  • Charles April 14, 2016, 2:16 am

    Very educative post. Thanks for sharing

    Reply
  • Edward Zeiden April 14, 2016, 8:16 pm

    Thanks, Charles!

    Reply
  • Tim April 15, 2016, 4:05 am

    Yeah, but no. Unicorns are company that are valuated at more than a billion dollar.

    Reply
  • Edward Zeiden April 15, 2016, 4:23 am

    Thanks for the comment, Tim!

    I’ve heard that interpretation in finance circles as well. Great addition.

    Reply

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