When it comes time for startup valuation, you may wonder just how you can work out the value of your startup.
The methods are important because you may not have a huge revenue stream which makes valuation a bit harder.
In this article, we look at five tips to help you determine the value of your startup. After all, you want to earn this highest valuation from your investors, instead of being undervalued.
#1: Talk to Your Accountant, Lawyer, and Investors
Yes, you are most often worth what the market says you are, but there may be room for variances.
For some startups who took money from friends and family instead of professional investors, they find they may be overvalued. On the flip side, you may feel your startup is being undervalued by investors.
To get a keen understanding of your valuation, take the following information to people you trust such as your lawyer, accountant, or friendly investor:
- Current revenue
- Market size
- Growth Projection
Your trusted advisors can help you and provide some insight on your valuation.
#2: Know How Much Money You Need
When considering your value, consider how much money you need to operate. This is a fairly simple way to value your business in your earliest stages.
When compiling this info, include how much money you need for the first six months. Then, consider how much you’ll need to jump start your growth within the first year and a half.
Once you have these numbers at hand, your investors have a starting number to figure out how much their investment is worth.
#3: Compare the Competition
Another tip to help you determine your value is to look at the competition as well as others in your industry. You can look online to find companies that are similar to yours.
You can learn how many times their valuation is compared to their revenue by visiting sites like BizQuest. This will give you a good idea of the value of your startup.
#4: Consider Extraneous Factors
Are you a seasoned entrepreneur? Have you launched a successful startup before?
If you can answer yes to these questions, then your startup may have a higher valuation because you’ve proven yourself. You have a great reputation, and you’ve taken other companies to success.
When this is the case, your valuation is usually higher, because investors see your track record.
In addition, if you have a strong team behind you of seasoned startup employees, again, this is a factor that could influence your valuation.
Lastly, try and get multiple investors negotiating on your business at the same time. This is the old tried and true supply and demand. The more investors you have on the line, the higher your valuation.
Now that you have five tips to help you determine the value of your startup, let’s summarize.
The most important thing to remember is that your value is largely dependent on market forces.
For example, this may mean the balance between supply and demand. It may also mean how many of your competitors have left the sector recently. In addition, the value of your startup really is what an investor is willing to pay to jump on.
If the investors tell you what you’re worth, then that’s simply what your startup is worth. You might have a different opinion and even know that you have assets greater. But, if you can’t raise more money than what they’re offering, it’s what your startup is worth.
Finally, the value of your startup may even be determined by you and how desperate you are for investors. You may hold out in the beginning for higher amounts but find yourself agreeing to settle for more in the end.
The best thing for you is to know what you think your startup is worth and research the market forces so you can stand by your dollar amount.
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