Start-up Valuation
Company valuation is a complex task and even more difficult when it comes to a start-up that has no historic financial performance to assess the business on or has generated any revenue yet. The traditional valuation techniques used for corporate companies doesn’t always apply for these start-ups, as they may not generate high revenue but have high number of subscribers and growth potential. Different factors need to be considered when valuing a start-up, which are as important as the company performance. These factors include the attractiveness of the industry (Scalability, trade mart and entry barriers), the founders and management team, product stage (Proof of concept and traction), financing option (Existing investor background, co-investment opportunity, possible exit option and founder relationship with corporate world) and the external relationships of the new venture.
| Value Drivers | Value Destroyers |
|---|---|
| Start-up Belongs to Hot Sector | Little Margin Products |
| Solid Management Background | Traditional Model |
| Functioning Products | No Proof of Concept |
| Traction |
Among all of them, the biggest factor could be the market forces of the industry and sector in which it operates. This incorporates the balance/imbalance between the demand and supply of cash, the regency and size of recent exits. Most of the industry valuation expert use DCF, venture capitalist, scoreboard & black solve methods to value the start-ups but at end of day the deal is closed based on negotiation skills and value drivers (business model, success story, promoter backgrounds and proof of concept). Although among all the methods, the venture capitalist is the most popular method, the major challenge with venture capitalist is factoring the effective dilution. In all cases, especially in seed & series A, effective dilution tends to be 3x to 4x. It is so general for start-ups to raise further round of investment after seed & series A. Hence in venture capitals method it is always recommended to factor the expected dilution especially for Angel & seed round investors (In case of absence of anti-dilution rights).
Although there is no industry standard methodology for start-up valuation, few factors and range are as follows.
We offer following services for start-ups
- Start-up Valuation
- Business Plan
- Business Reporting
- Business Forecasting
- Financial Projection
- Captable
- Pitch Deck
- Fundraising
- Virtual CFO
- Industry Research
- Market Research
- Go to Market Strategy
- Shareholder Agreement
- Share Subscription Agreement
- Simple Agreement for Future Equity (SAFE)
- Financial Due Diligence
- Employee Contracts and Offer Letter/Employee Stock Option