HOW TO VALUE YOUR STARTUP FOR INVESTORS

The growing development of startups poses new challenges for investors who are unfamiliar with but interested in these kinds of companies. The particularities of this (now-not-so-new) kind of companies call for new valuation parameters.

Specifically, the word “value” acquires a new layer of meaning and must be understood beyond its financial aspects: the entrepreneurial team and the degree of innovation in the technology used are subjective assets.

However, let us not be fooled. Even though we are talking about new companies, the analysis and application of traditional methodologies provide solid metrics that attract investors and are useful when dealing with other less certain metrics. One of the most recurring financial indicators to know a company’s value is EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), which consists in calculating — as evidenced by its name — the earnings before interests, taxes, depreciation and amortization.

6 Items that Will Affect the Value of Your Company

Market size

This indicator may justify higher valuations because an investor will be willing to take a bigger risk if the market size suggests that potential earnings in the future are worthwhile. Considered together with this are customer acquisition, retention and monetization, used specially in non-traditional valuation methods.

Revenue

Obtaining revenue from the beginning shows a business’s sales capacity and evidences the existing demand in the market. This valuation method provides the best picture of the free cash flow and how that metric will generate an incremental value for the buyer.

Monthly growth

This metric can be used both for revenue and for startups with subscription or SaaS (Software as a Service) models. Although this is not necessarily the case with every SaaS company, projects are expected to show a steady 20% intermonth growth.

Active users

This indicator depends on the type of product or service, but, in general terms, “active users” are paying customers, not only because they represent the company’s revenues, but because they show their degree of commitment and the rising or declining trend for future revenues.

Team

This is one of the subjective assets of your business. It measures your team members’ expertise (education and experience) and, above all, attitude (the entrepreneurial nature of these people which will determine a company’s capacity to penetrate the market). Here, it is important to show a track record of enterprise, failure and attempt. Above all, show your capacity for resilience, perseverance and vision.

Notwithstanding, since this may be problematic for investors with little experience in valuating intangible aspects, it is possible to obtain a purely mathematical valuation based on the market volume that can be gained.

Comparable valuations

An investor willing to contribute capital to the project will probably want to learn about the performance of different companies within the same industry. This means studying the value of other transactions in the industry. In order to do this, the investor will take as a reference the company’s business model, billing figures, operating margin, age and size. A downside to this approach is that a startup’s valuation may change drastically depending on the market conditions.

Burn Rate and Runway

Argentina

Onapsis en FoCO

Argentina

Todo lo que necesitás saber (y no entendías) sobre Precios de Transferencia

Argentina

Desayuno TicTax con Wormhole

Argentina

Reforma laboral en México: actualización sobre las nuevas reglas

México

Entre el aguinaldo y el ATP: siete novedades en materia laboral

Argentina

Newsletter

Mantenete Actualizado.