How to Value a Business Startup
How you value your business is one of the most significant challenges that any startup company faces, especially in the world of tech. Knowing how beneficial you would be to a broader ecosystem is one thing, but knowing how to put a price on it is far more challenging.
This is especially true for setting a price for obtaining startup funding at various rounds of financing from potential investors. It's a constant balancing act between over- and under- business valuation, with both having serious consequences for future rounds of funding.
How much does your company need in investment?
Contrary to popular belief, startup investors don't just write out a cheque to your company. Investors assess the market and demand for the prospective business, then evaluate your business value. This is referred to as a pre money valuation, and it's highly useful as it calculates the level of investment based on how much the business may be worth.
What are your rivals valued at?
This can have a profound effect on the amount of finance you hope to obtain as an initial, or later-series investment. Researching other businesses within your area can give you a better premise for obtaining startup funding, without unwittingly pricing yourself out of investor interest. It will also prevent you from underselling your business, which will place pressure on your company and damage your longer-term profitability.
Don't fall into a capital death-spiral
Once you have your startup finance, that money will be put towards developing your business and getting it off the ground; from infrastructure to marketing and equipment. Your business' objective is to make your presence known in the market, and use the capital to generate revenue. Companies that focus more on the expansion than generating revenue will find themselves quickly in a dangerous spiral, seeking more money to sustain a very fragile business model.