Building a startup does take a tad bit more than you’ll plan. Sowing the seed of an idea, figuring out a way to implement it, allocate resources and mapping all possible pitfalls to avert.
Nevertheless, you observe various industry trends and try to gauge your business concept, to find whether it’s worthwhile enough to be welcomed in the market. But, an imperative things to consider during the whole process is that businesses across the globe succeed or suffer a downfall, based on the value proposition made.
So, before you face any investors and take the plunge, here are a few tips that will help you evaluate your startup in a much efficient way. Dart sufficient glances and choose the right lane for your startup.
1. The Market Determines Your True Value
You might have a completely different idea regarding it, but if investors quote an amount for your venture, then the true value will always be in the vicinity. You might also know it’s worth more than anyone else, because your company may have more than the estimated amount in liquid assets or receivables. But if you’re unable to raise money even after such high estimation, then there’s pretty little you can do, except for going for the market valuation.
2. Gauge it on the basis of Supply and Demand
Before proceeding any further, let’s not forget the basic economic principles pertaining to supply and demand. The more meagre your supply (like your equity share in the business of a new patented technology), the higher is the demand (like multiple `investors fighting for a deal, and increasing your valuation in the process).
For this to happen, never let the investor get under the notion that he’s the only duck pursuing you and your business. Plus, to prevent getting your valuation process getting hurt, you need to ensure that your business is rightly perceived as something unique to maximize your valuation.
3. Your Targeted Industry Matters Too
This is one of the most crucial constraints you need to consider. Each industry has it’s own way and factors to practice valuation methodologies. A next generation robot business would obviously get priced at a higher valuation than some widget manufacturer. Hence, before you approach an investor with high valuation hopes, make sure you have clearly gone through and studied those achieved in the most recent financings or transactions in your industry. In case, you feel you need access to such financial statistics and tools, get a financial advisor on board.
4. Don’t Forget the ‘Rule of Thumb’
Whatever may happen, the investor will definitely have good sense to what your business is worth, if they see deal flying in every time. They will readily pay for every expense in your business, if you know how to tap the market pulse.
All you need is to maintain a few term sheets from different investors and compare the valuation, to play them off, hence clinching the best deal. However, the rule of thumb expects you to give up 25-35% of your equity share, in every financing you make.
All of the aforementioned kept apart, you need to step into your investor’s shoes to set the right valuation for your company.
Nuances are too many to cater to, but the hack lies in identifying the most crucial ones. So, without further ado, just get going. Your startup needs the right estimation before anything else in this world.
Author Bio: Anshuman Kukreti is a professional writer and a keen follower of the global job market. An engineer by qualification and an artist at heart, he writes on various topics related to employment across the globe. Reach him @ LinkedIn, Twitter and Google+.