“Creating a great Value is the most important, but it must be measured by Valuation”. Peter, Wiz4.biz
Valuation Topics: Your Idea, Team, Target Market, the Competition, Stage of Development, Strategic Alliances.
Valuation of Companies is tricky. The methods used to value a company are dependent on the stage of development of the startup. Coming up with the price for early-stage startups is extremely difficult, because they have little-to-no track record. So here comes the question about Valuation:
How do Angel or Seed Investors “value” a Startup?
“Valuation is what the Market is willing to Pay” you’ve probably heard quite often. Assuming this Market principle holds (and I couldn’t agree less), how does the market boil down to deciding how much it is willing to pay for something? I can hardly think of all Market Agents for Investors casting values randomly trying to guess. The truth is, Market Agents do follow an Estimation methodology in trying to identify the intrinsic value of a high-growth enterprise.
Valuation is not an exact science, but rather a Systemic approach that enables Market Agents & other Practitioners to estimate – with reasonable accuracy – what today’s Value of a company is.
Startup valuation is a specific discipline within the Financial theory, as it needs to take into account the much higher “uncertainty” of Startups compared to more Mature companies. In this regard, an analysis of Financial data is just a part of this process and can’t exclude the assessment of Qualitative data in the Valuation.
Track Record. Thanks to the Track Record of the most experienced business Investors, we are able not only to identify those features in a startup that will most likely determine success, but also to “quantify” their impact for Valuation. According to the research by the Kauffman foundation, there are 1+5 major categories which should be used to “value” a startup. These are discussed below.
1| Your Idea
Investors should “love” the concept behind the startup – that is, “the Problem being Solved“. As an entrepreneur, you should focus on determining the clear “need” which leads people to use/buy what you offer. Of course, it’s up to the Investor to believe you or not. Once the initial interest is triggered, the Investor’s Assessment will switch to other elements of your startup for the Valuation.
Quick Tip: You can use storytelling in your Investment Proposition to make the investors believe in your Vision for the company
2| Your Team
Does your team have the right experience &capabilities to seize the full potential of the opportunity? Aspects which will be under analysis are: the relevant working experience, managerial & technical capabilities, past successes as an entrepreneur, team spirit, commitment of the founders, etc.
“The composition of your team affects your overall business value. Find out how much team expertise influences your valuation at Equidam!
3| Target Market / Sector Size of the Opportunity
How large is the potential of the business? Valuation elements to take into consideration here are: the market/sector, geographical focus, scale-ability of the business, projected growth and so on.
4| Product / Technology’s – Intellectual Property
What’s the product or service being offered and is that right for the purpose it should serve? Investors may assess the product/service roll-out, the fit with the market demand being addressed, the presence of unique Intellectual Property & how easy it is to copy (ie, any Barriers to Entry) as part of their Valuation.
5| the Competition
Does your Startup have significant Competitors. How large is the “threat” created by them? Here you analyse the number & level of development of competitors, the quality of competitors’ product/services, threat by substitute products/services, competitive advantages and Unique Selling Points (USPs) of the startup.
complete a SWOT analysis of your Startup. Your Strengths, Weaknesses, the Opportunity & Threats from competitors for the Valuation.
6| Stage of Development
What’s the stage of development of your startup and what does it need to reach its full potential? This category includes an analysis of the development stage, resources currently available, & funds needed.
7| Strategic Alliances
Who have you allied with, what is their credibility & how will it help you develop & launch your product/service? Does it reduce your Risk, Does it increase your range of Competency? Does it give you Competitive advantage? Does it help you manage or grow your business better? How does this help your Valuation?
Conclusion: All these above elements contribute a great deal to your final Valuation. Being able to explain your strengths in these areas is pivotal in communicating & explaining the Valuation with investors – as much as it is essential in calculating it for yourself.
P.S. Equidam Valuation Platform can help you calculate your business value.
Try it here for FREE!
Comments: do you know of any other Factors that would make your Valuation more accurate?
give a Equidam enhanced by Peter/CXO Wiz4.biz 9/18