Finding out the value of your startup: 5 factors to consider - TechCrunch

Finding out the value of your startup: 5 factors to consider – TechCrunch


“What’s your award?”

As an angel investor, this is one of my first questions when talking to a founder about a potential investment. And I often hear numbers that are either too low or very high.

For example, the founder, who graduated from an elite business school, recently told me that his fintech company was worth $ 50 million at an early stage. The startup had two employees, both of whom were full-time at business school. There was no IP, no MVP and the founder had only a general idea of ​​the marketing strategy. Soon after, I ended the meeting because the factors they used to arrive at the award had no real basis.

Another CEO I spoke to had a game-changing product, a large total available market (TAM), successful beta versions, some product sales, an impressive team, and a well-thought-out marketing strategy. When the founder said the company was worth $ 500,000, I advised her to reconsider its valuation because it was extremely low.

Many investors would not offer this kind of advice to the founder they just met, but because the startup had the potential, I encouraged the founder to repeat her homework.

What is “valuation”?

The startup’s award indicates what value it has at a given moment. Factors that make up a valuation include the development phase of a product or service; proof-of-concept in its market; the CEO and their team; award for colleagues or similar startups; existing strategic relationships and customers; and sales.

While there is no exact science on how to find out how much money you will need along the way, certain industries and sectors have patterns that you can look for.

Entrepreneurs usually value their start in raising capital or providing shares to their team, board members and advisors. Accurate valuation of your startup is crucial, because if you overestimate it, investors will probably not give you any money.

On the other hand, undervaluing your startup means that you are giving up big capital for less money, or you are underestimating what you have built so far.

It’s more art than science

There is no simple formula to follow when evaluating your startup. Because most startups cannot actually demonstrate their commercial success on a large scale, the award takes into account the nature of the product or service, the business projection and the TAM.

You may have heard that valuation is an art rather than a science, and it is often true – startups often do not have enough concrete data at an early stage and face a number of risk factors that could change the way a business runs. Many traditional valuation methods, such as discounted cash flow, are less useful for valuing start-ups at an early stage. This means that investors have to measure other factors that are not so easy to measure.

Your task as a founder is to show:



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