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Advice on how a startup value is determined and why it is essential information for fundraising.
Before you start to think about fundraising, it's important to value your business so you can provide this information to potential investors. This can be a big challenge, especially for young businesses.
However, it is essential that a realistic value be determined, because the overall value placed on the business will go toward determining the value and percentage of its shares.
For example, a $2m business value would provide a $500,000 investor with a 20% share, while if the business was given a higher value, say $3m, then the investor would only get a 14% share. Share percentages are a vital aspect for investors, as this determines the return they will get on their investment upon exit. It can also lead to conflicts over equity in early stage valuation, with business owners wanting a higher valuation and investors undervaluing. Download our guide today for advice on how to achieve a realistic valuation.