Calculate startup valuation using a simplified 5-year discounted cash flow model. Project free cash flows, terminal value, and net present value.
A discounted cash flow (DCF) analysis estimates the intrinsic value of a company by projecting its future free cash flows and discounting them back to present value. Unlike relative valuation methods that rely on market multiples, DCF provides an absolute valuation grounded in the company's own financial projections and the investor's required rate of return.
For startups, DCF is particularly challenging because early-stage companies often have negative cash flows and highly uncertain growth trajectories. However, a simplified 5-year DCF model can still be valuable for framing discussions around what growth assumptions are required to justify a given valuation. It forces founders and investors to be explicit about their expectations.
This calculator builds a 5-year DCF model with a terminal value calculation. Enter your Year 1 free cash flow projection, expected growth rate, and discount rate to see the net present value of the business. A year-by-year breakdown table and terminal value analysis help you understand exactly how the valuation is constructed.
DCF forces you to think rigorously about future cash flows rather than relying on what comparable companies are trading at. This calculator simplifies the process into a quick model where you can experiment with growth rates, discount rates, and terminal assumptions. It's ideal for founders preparing for investor conversations or investors stress-testing a startup's pitch deck projections.
PV of Year t = FCF_t ÷ (1 + r)^t Terminal Value = FCF_5 × (1 + g) ÷ (r − g) PV of Terminal Value = Terminal Value ÷ (1 + r)^5 Enterprise Value = Σ PV(FCF_1..5) + PV(Terminal Value) Where r = discount rate, g = terminal growth rate
Result: Enterprise Value ≈ $8,140,000
Starting with $500K Year 1 FCF growing at 30% annually, the 5-year projected cash flows are discounted at 25%. The terminal value assumes 3% perpetual growth beyond Year 5. The sum of discounted cash flows ($1.7M) plus the discounted terminal value ($6.4M) gives an enterprise value of approximately $8.14M. The terminal value accounts for about 79% of total valuation, which is typical for high-growth companies.
The DCF method projects a company's future free cash flows and discounts them to present value using a rate that reflects the investment's risk. For startups, the challenge is that cash flows are highly uncertain and often negative in early years. Despite this, DCF provides a structured framework for understanding what future performance is required to justify a given valuation.
In most startup DCF models, terminal value accounts for 60–80% of the total enterprise value. This occurs because early cash flows are small and heavily discounted, while terminal value captures the perpetual growth phase. Investors should pay close attention to terminal assumptions, as a 1% change in terminal growth rate can move valuation by 20% or more.
Founders can use DCF to back into the growth assumptions implied by their target valuation. If an investor offers $10M at a specific discount rate, what does that require in terms of Year 5 cash flow? This reverse-engineering approach makes abstract valuation discussions concrete and actionable.
Startup discount rates typically range from 25–50%, far above the 8–12% used for mature public companies. The high rate reflects startup risk — most fail. Seed-stage companies might warrant 40–50%, Series A companies 30–40%, and later-stage startups 20–30%. The rate should reflect the probability-weighted risk of the cash flows never materializing.
Terminal value represents all cash flows beyond the explicit projection period, assuming perpetual growth at a stable rate. It often accounts for 60–80% of a DCF valuation for high-growth companies because early-year cash flows are small relative to the growing stream of future earnings. This is why terminal assumptions are critically important.
Technically yes, but it's less reliable. You'd need to project when the company reaches positive cash flow and estimate the magnitude. The results will be highly sensitive to assumptions. For pre-revenue startups, methods like comparable transactions, scorecard, or Berkus method may be more practical alongside DCF.
Free Cash Flow to Firm (FCFF) is cash available to all capital providers (debt + equity) and yields enterprise value. Free Cash Flow to Equity (FCFE) is cash available after debt payments, yielding equity value directly. This calculator uses FCFF-style analysis. For startups with minimal debt, the difference is usually small.
DCF is only as reliable as its inputs. Small changes in growth rate or discount rate can dramatically swing the result. Its value is less in producing a precise number and more in forcing clarity about assumptions. Always present a range of scenarios rather than a single point estimate.
Terminal growth rate should be at or below the long-term GDP growth rate (typically 2–4%). No company can grow faster than the economy forever. Using a higher rate produces unrealistic valuations. Many analysts use 2.5–3% as a default for US-based companies.