Startup valuation is important from the viewpoint of raising money for the business. While valuing the already settled businesses isn’t as difficult, valuing a startup could be one. This is because the company is just a startup with no past record, performance history, reviews, etc. The company is yet to gain ground in the market, and therefore, determining whether your startup is worth 1 million INR, or it isn’t, could be difficult. Often, you’ve got to go by what the investors say. Nonetheless, it is necessary that you work out an amount, so that you tag some value to your startup, and investors tag it to their investments. This article discusses some ways of valuing a startup, thereby simplifying life for the startup owners as well as investors.
Determining the Worth of your Business in the Market
You don’t necessarily have to go by what your investors say, or how much they value your company. But, if you don’t agree to what they say, you’ll have to put forth a sensible calculation that would help you value the worth of your business in the market. So, how do you do it?
- Work out Financial Projections: Startups don’t have a past. They live in the present and work for the future. Hence, it is imperative that you make some sensible and realistic projections to support the worth you’ve derived to. Remember, it is difficult. However, with your own research about the future of your business, coupled up with financial advice from valuation experts, you’d be able to come to a more logical figure.
When it comes to profit projections, often, investors look for investing in businesses with quick profits. So, it is necessary that you determine the number of years required to turn your business into a profitable venture. Also, find out the market value of profitable startups in the same business. That would help you to determine the future value of your own business. Again, research is the key, and you must know your business very well, along with the market it is destined for in the next 2-3 or 5 years or so.
- Make Comparisons: You may not wish to compare your business with anyone else’s, but here it is required. Find out the worth of your peers in the same business. That would help you derive a better figure as well. Seek some consultation from lawyers and accountants, as they’d help you calculate the market rate of your peers in the market.
- Tangible and Intangible Assets: Working out tangible assets is quite simple. But, dealing with the intangible assets of a startup could be quite difficult. The simple reason here is that you can’t measure them and startups haven’t really reached those levels yet. Intangible assets could include various factors such as goodwill, copyrights, intellectual property, brand value, etc. Nevertheless, startup values in the market would help you determine the value with all the assets put all together.
By
Anandkumar Gawade
Registered Valuer for Securities and Financial Assets.