How much startup worth

Finally, multiply that sum by the average valuation in your business sector to get your pre-revenue valuation. The key to this method is in the name.

You simply add up the fair market value of your physical assets. You may also include research and development costs, product prototype costs, patent costs, and more. This is a broader method of valuing your startup. Start with an initial valuation based on one of the other methods mentioned here. The difficult portion of this method is finding an objective point of reference to measure each component. Starting with comparable methods, like the Scorecard Method or Comparable Transactions Approach, may help.

You may need to work closely with a market analyst or an investor to use this method. You take your forecasted future cash flows and then apply a discount rate, or the expected rate of return on investment ROI.

Generally, the higher the discount rate, the riskier the investment — and the better your growth rate needs to be. The idea behind this is that investing in startups is a high-risk move compared to investing in businesses already operating and earning consistent revenue. It considers three scenarios — the other two being one in which the startup performs poorly, according to projections, and one in which it performs even better than expected — giving you three different business valuations.

As the name suggests, this method is a go-to for venture capital firms, and it's another option to consider if you need a pre-revenue valuation. It also reflects the mindset of investors who are looking to exit a business within several years. You can find this using estimated revenue multiples for your industry or the price-to-earnings ratio. Nevertheless, entrepreneurs need to put a value on their startups in order to raise money, and investors need to put a value on their investments to generate liquidity.

Since neither entrepreneurs nor investors are known for right-brain artistic thinking, this article aims to provide some tips for left-brain thinkers to make sense of startup valuation. You are what the market says you are. You might think it's worth more. However, this isn't always true. If you raise money from relatives and friends rather than professional investors, it's possible that your company has been overvalued or undervalued more likely, overvalued.

But you can also tell the market what you're worth. Although this might seem to contradict the point made above, it's possible to tell the market how to value your company. By definition, startups don't have a history of financial performance on which to base a valuation. Therefore, it's up to the entrepreneur to develop a process for valuing the company based on comparables and financial projections.

You're not really worth anything until you're profitable. If you're not profitable, your business probably isn't worth very much. That is, it doesn't have as much liquidity as it would have if it were profitable. Many businesses cannot be sold, since there aren't enough business buyers for every seller. Almost all unprofitable businesses cannot be sold for the same reason. This makes valuation particularly challenging for a startup. Since young businesses take time to become profitable, the trick of valuing startups is to focus on the future.

First, determine how many years it will take to be profitable. A business with a long road to profitability will usually be worth less than one with a quick path to profitability. Investors will be much more open to your valuation expectations if you can be specific on why you need the funding and how you will use it.

Unless you are ready to back up a high valuation with growth potential, and you are ready for the roller coaster ride, stick to a modest valuation. One way to prove your value to investors is by testing your idea out a few times. Get enough results that you can show to potential investors and prove that, with some investment, you have something to offer the industry and can grow and meet expectations.

If someone is going to give you money, it is important to them that they can see that your idea works and they will earn a return on their money. Be upfront about your plants , whether you are looking to go all way through or you plan to exit with the first opportunity.

Compare your venture assets such as team, KPIs and IP to other players on the market — and understand at how much the competitive landscape raised. Sites such as Crunchbase and CB Insights are of great help to do so. While it is tempting to give your startup the highest valuation, remember that you will need to meet the growth expectations to stay at a high valuation.

Hence, if you are unrealistically high on your valuation, it could make your startup life difficult down the road. Tommaso is a serial entrepreneur with 2 exits based in Silicon Valley, with 18 yrs of tech expertise Tommaso is passionate about sharing lessons learned with others as a speaker, as an advisor to startup accelerators such as Draper University, The Alchemist, etc and as a writer.

He lived on 3 continents, speaks 6 languages and blogs actively on www. Tommaso's upcoming book www. We use cookies to ensure that we give you the best experience on our website. By continuing your visit on the website, you consent to the use of the cookies.

If you want to find out more about the cookies we use, you can access our Privacy Policy. Do your research You can value your company, even in the earliest startup phases, by looking at similar companies in your industry and geographic location and their valuations. You can influence the number the market puts on you While this may seem contradictory to the previous point, you do have some influence in your market value.

Ask yourself a few key questions: How many years will it take you to be profitable? If you can get there quicker, you valuation will be higher. How much are comparable companies valued at when they become profitable?

Your industry makes a difference Each industry has its own way of valuing startups. Examples of stages of development include: A startup has an exciting business idea A startup has a stunning team of engineers and a great business person The startup has a Minimum-Viable-Product MVP with early adopters The startup has partners, a customer base and a pipeline of prospects Revenue growth and an obvious pathway to profitability is shown.

What Grade Are You? Freshman : an idea, team and a prototype.