Valuations - The Gordian Knot!!

Startup Valuations – it is a mess!!!

The most puzzling is valuation! Frequently, founders I meet do not know, do not want to discuss, having thought about deeply, or unsure how to identify valuations. The silly part is , the main reason investors and founders engage, is Capital Gain, based on the value of the company, aka Valuation.

As a “Significant” percent of the founders do or do not do “something” to discuss their company value, ?I say, :let us stop that and take it head on!!"

Do what Alexander did, cut thru it with a tool. His, was a sword. Yours, is Eqvista , a business partner of ours with a nice clean valuation service and software to use – yes, a shameless mention of Eqvista, but it works – simple , easy, and speaks your language – video

Now, the content - read below to better understand one thing - do not do it alone. Get help! We Suggest Eqvista.?

Startup valuation can be ?based on its tangible and intangible assets. Common startup valuation methods: 1. Venture Capital Method 2. Scorecard Valuation Method 3. Comparables Method 4. Risk Factor Summation Method 5. Cost to Duplicate Method 6. Discounted Cash Flow Method 7. The Book Value Method. Details below.

Tough is startup valuation: low or not tangible assets, no meaningful operating income, maybe no salable product, and off course unpredictable? market/future combined with? fast moving innovation. So, it is difficult. Yet, you "Alexander or Alexandra the Founder" must land on something. Go ahead, helpe and on a value you can defend and work from. Get your valuation done, and you do not need to be a do it alone.

Apply here https://t.ly/_epEQ-SVVGEQVISTA , tell them Jordan sent you, and we will get you a discount or something.

From Eqvista resource center, with edits below.

Common Startup Valuation Methods Explained | Eqvista

Ever wondered how?Angels?and?Venture Capitalists?evaluate the viability of a startup? How much do they invest? Or how do startup founders know the size of investments they qualify for?

Valuing startups is required for strategizing, raising funds, and deciding the right path forward. Startups are basically new ventures that are still in the process of developing and gaining a foothold in their respective markets, while valuation is a process of determining the worth of a startup. There are?several methods used to value a startup. Planning, execution, and research, valuation can be done in a fair, objective, and efficient manner.

?STARTUP VALUATION

A promising startup is founded on a brilliant idea and a dream. From its inception, a startup goes through several stages of growth and expansion. But no progress is possible without?timely financial investments. Investments cannot happen without an estimate of valuation based on its current status and future potential.?Startup valuation methods?are the foundation for attracting the much-needed funding for a startup. Master them? or get help!

WHAT IS A STARTUP VALUATION?

A startup valuation ?is a tricky process. It is the process of?estimating the value of a startup based on its tangible and intangible assets. - with much focus on its future growth potential. Investors and founders use various metrics to arrive at a near-exact estimation. Projections and industry benchmark comparisons are key, especially for pre-revenue startups.

A startup is a founder’s baby, so the overestimate their valuation. While pitching to?investors, one must note that a high valuation for startups must be complemented with a promising growth potential. As for investors,, they are looking for their next highest ROI. A high value startup without a realistic growth plan will fall short of their expectations. They also want a startup valuation that grows exponentially with every funding round.

WHY IS IT IMPORTANT TO ESTIMATE THE VALUE OF A STARTUP?

Investments are the lifeline of every startup. Engaging any resource to enrich the company will come at a cost that a startup in its early stages is not equipped to bear. The next logical step is to approach investors for the required funds. An investor will fund a startup only if they see a?scope of big profits in owning their equity. The Valuation of startups thus is the baseline used by investors to evaluate?startup funding?proposals.

Startup valuation methods vary with their stage of development.?Different qualitative variables?and?statistical analytics?are applied based on the position of a startup in its lifecycle.

As startup valuation methods vary based on the?stage of business development. Founders must strive to get it right from the start as every stage is a stepping stone to the next, and be well equipped with suitable strategies to justify their?company valuation?before approaching investors - being aware of their own company, competitors and industry benchmarks.

Pre-revenue company?valuation cannot involve just one linear formula. It demands a comprehensive judgment of several factors, some of which are:

• Traction?– Since a startup does not have much to show in revenue, investors look for?product adaptability.?The more users,?the better. Brownie points for lower cost of customer acquisitions. Investors are more likely to fund if they are convinced about the?startup’s growth potential on a limited budget. It simply indicates ....
• Reliable founders?– The startup founding team is the face of the company. The merit of the product/service aside, investors look for an?experienced founding team?with diverse skill sets equipped to holistically grow the company. For instance, a tech startup with a promising patent will ...
• Prototype?– This is a game-changer. No matter how great a business idea is if the startup has managed to?create a prototype?with early adopters to show, their valuation increases considerably.
• Industry needs?– Startup marketplace is presently dominated by AI and tech industries. This is where the money is. Investors tend to value a startup higher if they are?catering to a profitable industry. Similarly, the demand...
• Profit margins?– Investors have a primary agenda – quick profits. Despite all the above four factors showing a high, unless the ...

COMMON STARTUP VALUATION METHODS

Some common startup valuation methods?that come handy at different stages in the lifecycle of a startup.

VENTURE CAPITAL METHOD

This is one of the methods to arrive at the pre-money valuation of a pre-revenue startup. In this startup valuation method, first the?terminal value is estimated. Terminal value is the expected value of the startup during the harvest year, the year when the investor plans to exit. From this point, the pre-money valuation is calculated using the following formula:

Post money-valuation?= Terminal value / Anticipated ROI

ROI?= Terminal value / Post-money-valuation

Where?Pre-money valuation?= Post-money valuation – Investment

SCORECARD VALUATION METHOD

Otherwise known as the?Bill Payne valuation method, this is a common valuation model for startups used by Angel investors for pre-revenue startups. The idea is to find the?average valuation of all pre-revenue startups in the target company’s market?and?compare it to the pre-revenue valuation score of the target company.

Here is the scorecard with its corresponding value: see article...

• Management team?0 – 30%
• Size of the opportunity?0 – 25%
• Product/Technology?0 – 15%
• Competitive environment?0 – 10%
• Marketing/Sales channels/ Partnerships?0 – 10%
• Need for additional investment?0 – 5%
• Others?0 – 5%

The total score of the target company is the?total of all the 7 factors. Finally, this value is compared with the average pre-money valuation of all pre-revenue companies in the target company’s industry.

COMPARABLES METHOD

This is quite a simple and straightforward startup valuation method. It involves?choosing a reference metric from a similar company in the market and comparing the target company’s value with it. For example, if a competing business is valued at $2,000,000 and they have 100,000 early adopters ...

RISK FACTOR SUMMATION METHOD

This valuation model for startups aims at?risk assessment of the target pre-revenue startup. It is similar to the scorecard method and uses the following?12 elements to evaluate its risk status:

• Management, Stage of business, ..... ,Funding/capital risk.... Legislation/political risk .... Reputation risk.... Potential lucrative exit

The following?values are assigned?to each of these elements

• -2?………….Very negative
• -1…………..Negative for scaling the startup and carrying out a successful exit
• 0?……………Neutral
• +1………….Positive ..see article

COST-TO-DUPLICATE METHOD

This startup valuation method as the name suggests is based on the idea that a company is worth only as much as it takes to duplicate it. This valuation tool ....

DISCOUNTED CASH FLOW METHOD

This method of valuation for startups estimates the?future cash flow of a pre-revenue startup. Based on this, the investor’s ROI is calculated. Furthermore,...see article

VALUATION BY STAGE METHOD

This method addresses the basics of how startup valuation works. It is based on the?business stage of the startup?and?provides a range of possible investments at each stage. Further along a company is in its lifecycle, the more stable it is, the lesser the risk of investments. Here is a brief of possible investments based on the company stage: see artice.

THE BOOK VALUE METHOD

Otherwise known as the?asset-based valuation method, this valuation model for startups considers only?tangible assets of the company, similar to the cost-to-duplicate method. Since such valuations use statistics of the startup’s current status, it is mostly used to evaluate startups going out of business.

Now we understand, get your valuation done, and you do not need to be a do it alone.

Apply here