Valuing a company is estimating how much it is worth today in order to set the price of its shares or participations in a specific transaction: a round, a capital increase or a securities issuance. The three usual approaches are multiples, discounted cash flow and transaction comparables.
Why an issuer needs a valuation
Before raising capital, the valuation serves three purposes. It sets the issuance price and, with it, the share premium. It determines how much dilution you accept in exchange for the capital that comes in. And it is the starting point of the negotiation: the investor does not discuss the percentage, they discuss the valuation from which that percentage comes.
It also supports the offering documentation. A professional investor will ask for the assumptions behind the number, not just the number. A valuation that cannot be explained piece by piece becomes the weak point of the whole transaction.
How to value a company: the three approaches
No method gives an exact value: each one illuminates a part and all rely on assumptions. The usual approach is to apply two or three and present a range.
| Method | When it works best | Main limitation |
|---|---|---|
| Multiples (on sales, EBITDA or profit) | Businesses with stable metrics and abundant comparables | The result inherits the flaws of the chosen comparable |
| Discounted cash flow (DCF) | Businesses with revenue visibility and a well-developed financial plan | Highly sensitive to growth assumptions and the discount rate |
| Transaction comparables | Sectors with recent transactions and accessible data | Information on private transactions is partial and ages quickly |
In early stages, with few metrics, earnings multiples do not apply and DCF relies almost entirely on projections. There, sector funding round comparables and qualitative factors weigh more: team, market size, initial traction. The resulting range is wider, and precisely for that reason the documentation of assumptions matters more, not less.
Pre-money and post-money
The pre-money valuation is the company's valuation before the money comes in; the post-money is the pre-money plus the investment. The investor's percentage is calculated on the post-money: with a pre-money of 4 million and an investment of 1, the post-money is 5 and the investor receives 20 percent. It is arithmetic, but confusing the two references in a negotiation changes the real dilution considerably.
These numbers affect the cap table and the following rounds. A valuation pushed upward today is not a victory: it makes the later round more expensive and, if the business does not keep up, forces a raise below the previous valuation, with the strain that places on partners and investors.
The valuation that supports an issuance
When fundraising is structured as an issuance of securities, the valuation stops being an internal document and becomes the basis for the offer to third parties. That requires consistency on three fronts: with the share premium set in the capital increase, with the company's previous rounds or transactions, and with the business plan delivered to the investor.
The representation of value does not change this work. Tokenized shares require the same valuation discipline as traditional ones: the instrument changes its medium, not its nature. If you are deciding between both routes, the comparison is in tokenized equity versus capital increase, and the complete process of a tokenized issuance, in the guide on how to issue a security token in Spain.
Frequently asked questions
How is a company valued?
With three main approaches: multiples on business metrics, discounted cash flow, and comparables from recent transactions. Each has different assumptions and limits, so the usual approach is to combine them and present a range. In early stages, with few metrics, the team, the market, and initial traction carry more weight.
What is the difference between pre-money and post-money valuation?
The pre-money is the value of the company before receiving the investment; the post-money is the pre-money plus the money that comes in. The percentage the investor receives is calculated on the post-money. The distinction avoids misunderstandings when negotiating: the same amount implies different dilutions depending on the reference used.
What method is suitable for a company without profits?
Profit multiples do not work without profits. Revenue multiples are usually used if the company already has revenue, along with comparables from recent rounds in the sector and a discounted cash flow with prudent, documented assumptions. The goal is a defensible range to present to investors, not an exact figure.
Do you need a valuation that supports your next issuance? Take the issuance diagnosis (2 min) or request a proposal. If you prefer to start by reading, download the 2026 guide.
This content is informative and educational. It does not constitute legal, tax, or investment advice. Check the current version of each regulation in the BOE and on EUR-Lex.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, ESI, EAF, or ERIR). This article is informative and does not constitute financial or legal advice.
