Importance of Startup Valuation
Startup valuation is essential when assessing a venture during its initial stages. It provides you with a comprehensive financial condition, health, insights into critical business factors, and your company’s competitive position.
Read on for the significant reasons for startup valuation:
Comprehensive Company Health Check-Up
Startup valuation helps determine the current position of your company and project a probable estimate of the future growth of your venture. When determining the health check-up of your venture, certain factors are considered, i.e., your company’s existing position, the current direct and indirect competition from similar firms, your business objectives, and your preparedness for future market uncertainties. It provides insight into your company’s current and future position by providing you with an understanding of all the business situations. With all this information, you can devise various strategies to tap future opportunities and deal effectively with the business uncertainties and competition in the market.
Risk Control
Before starting a business, it is important to assess its risk profile. Startup valuation provides considerable information on the risks of investors’ assets. It helps assess the profits and reduces the chances of incurring a loss, keeping a positive reputation of your business and ensuring that you stay in the market entirely.
Assess Competitive Value
When starting your venture, ensure that you find a comprehensive report of your business competition’s current and future status about other firms in the same locality and industry as yours. The report will provide clear information on what you need to do to sustain your business despite the stiff competition. When you assess the competitive value, you will be able to advance your technology, reduce business uncertainties and deal with emerging competition from other upcoming businesses. You will be well prepared and be able to compete effectively with your peers.
Investor Access
During the startup of your venture, you will need investors to provide you with business assets and capital. However, it isn’t easy to find these investors as most refrain from investing their capital in new ventures. If you want to win the hearts of your potential investors, it is critical to have a comprehensive startup valuation from a reputable appraising company. Wiley Financial is a reputable and registered business valuation and asset appraisal company in San Diego with extensive expertise and a long track record in valuing startup companies across varying industries.
How to Calculate Startup Valuation
Various factors determine the process of valuing your startup. These factors include your teams’ experience and credentials, industry, and the surrounding market forces such as business competition and future uncertainties.
The following are methods of calculating the valuation of your startup:
Comparable Pricing Method
It is a simple method of valuing a startup venture. When using this method, a valuation of a similar business as yours in terms of churn rates and growth is used as an anchor to estimate your startup value. It provides an estimate of your company’s worth during its early stages. However, this method is not incredibly accurate but a good estimate when starting a business.
Scorecard Method
It is a common valuation method used by angel investors. The scorecard method is computed by assessing your startup business’ competition, strength, and team experience with other similar startup ventures in your industry at the same locality. If the qualities of your startup are above average, it implies that your valuation is high and is a viable investment opportunity.
Discounted Cash Flow Method
This method seeks to determine the amount of cash flow your startup will generate over a given period. The cash flow forecast determines your startup rate of investment returns. However, some assumptions are made when calculating valuation using this method. The discounted cash flow method relies heavily on the intellectual know-how of the analyst, the risks involved, and the discounting rates.
Cost to Duplicate Method
The cost to duplicate method evaluates the amount of capital required to establish a similar startup business from scratch. The costs involved include research, time, physical assets, and development costs. When calculating the valuation of a startup using this method, the actual existing receipts and records are used. However, the method does not forecast the return on investment, future sales, potential growth, and intangible assets such as business reputation or brand loyalty.
Conclusion
Before starting your venture, ensure that you conduct a proper startup valuation. It will help you determine the profitability of your potential business, market competition, the potential for growth, and the risks involved. If you don’t have enough assets and capital to start your business, a properly documented startup valuation will help you find potential investors to fund your business. Wiley Financial has the capability and expertise to provide you with a comprehensive report for your startup valuation that will help you make informed decisions before starting your business. Contact us today for factual insights on your startup business.
