3 Factors That Impact Startup Valuation
Although never straightforward, valuing established businesses has many recognized valuation methods for that sector/industry that can be applied.
It can be challenging to value a company in its startup stage. Startups usually don’t have any financial history, and if they do, they may be years away from showing sales, competitors, or precedent transactions.
A startup’s value comes from its resources, intellectual property, technology, brand, and financial assets. Non-tangibles like first-mover advantage are also valuable to investors.
Listed below are a few key factors to keep in mind to ensure your tech startup derives maximum value.
1. Solid customer base
Despite the fact that your startup might be the next unicorn and have an idea that can change the world, it may never get started without someone paying for all the work that goes into it.
There is a lot of difference between driving revenue and posting profits. Startups are valued according to their future earnings potential.
If your startup does not have an existing customer base or network to prove people use or need your product/service, there should be a plan in place.
2. Growth Prospects
If you do not demonstrate that your startup is leading the pack, investors may as well keep their money in the bank. By scaling up and achieving high growth, you show investors that you have considered possible barriers and risks to your business.
It is impossible for any plan to be perfect; things will always go wrong. However, you should be able to show investors where you plan to be in 12 months, two years, and ten years and how you plan to get there.
You should be able to demonstrate to investors how you plan to scale and achieve high growth for your startup.
The moment you gain the confidence of one group of investors, others tend to follow their lead to avoid missing out on an opportunity.
3. Brand Value
An entrepreneur needs to build brand awareness to gain traction. It is possible for startups to stand out from the crowd or differentiate their offerings without having to spend lots of money on PR. By word of mouth or viral advertising campaigns, companies can build their brand recognition among their client base.
In order to succeed as a startup, you need to build a strong brand identity, one that will guide you, help you make meaningful connections with your audience, and help you attract and retain talent.
It can be complex and unpredictable for a startup to value their business, as it depends on experts outside the company and their knowledge and experience.
For founders to maximize value, they should focus on critical elements of the business to ensure it is best positioned to build revenue, leverage opportunity, and mitigate risk, thus adding value inherently.
Values often depend on the team, the size of the opportunity, the competitive environment, and if further financing is needed.
Making the right decisions and getting the proper support is crucial at the beginning of a tech startup.
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