Risk Factor Summation (RFS) method

The Risk Factor Summation (RFS) method adjusts the average valuation of sector comparables by adding the sum of twelve risk factors specific to the startup being studied, each scored from -2 to +2.

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The twelve factors cover management, business stage, legislative and political context, manufacturing, sales strategy, litigation risk, funding, competition, technology, international exposure, reputation, and exit attractiveness. Each scoring point, positive or negative, corresponds to a CHF 250,000 adjustment of the final valuation.

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For a startup scored, on average, slightly positive, for instance +1 on eight of the twelve factors and neutral on the remaining four, the cumulative adjustment reaches CHF 2,000,000 above the reference average valuation, a far-from-negligible gap that illustrates how sensitive this method is to how many factors are actually scored positively or negatively.

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Compared with the Scorecard method (Bill Payne), the RFS method has the merit of explicitly pricing, risk by risk, the deviation from the sector average, which makes the discussion with founders easier during business valuation of a seed-stage startup: each adjustment point can be argued individually rather than folded into a single overall score.