There comes a time when every startup needs to be crunched. Not just the ongoing metrics or KPIs but the huge numbers. At one point, you’ll need to sit down and calculate the valuation of your business. You must understand that startup valuation is never an exact science. Especially for early-stage startups. Such factors can include the current market, your industry, and your team’s credentials. There are other surrounding forces that are taken into account. A startup valuation is a measure of how the investors think about the growth of the company.
For instance, if you market your product that’s not popular, or experiencing a downturn. The startup valuation is lower than the companies experiencing the opposite. There are many startup valuation methods you can use. You can use established pricing or a type of company and phase of growth you’re business is in.
Startup Valuation Methods
Comparable Pricing Method
It’s the simplest startup valuation method. Find an organization that’s comparable to yours. Go for similar MRR growth and churn rates. Use this as an anchor for your own value. It might not be an accurate rate but a good standing point at various stage evaluations.
It’s one of the greatest valuation methods. Measure the success of the business. You can measure it in terms of competition, strength, and others. It enables you the comparisons with other average startups. If your startup looks for high-average qualities as per the calculations, go for it. The chances are to get a higher evaluation. This can be a promising investment opportunity for your business.
Discounted Cash Flow Method
The startup valuation method means how much cash flow will be produced over a period of time. With this forecast and calculating the expected rate of investment return, the value of the startup is calculated. Mere assumptions are made regarding the startup value of the business. It’s not the most reliable method. It totally depends on the abilities of the analyst. The discount rate is taken as a high-risk factor of a startup. It’s taken into account for better evaluation.
It’s more like building the same startup right from the scratch. It includes things like the time or cost taken for the program design and structure. It includes R&D costs or any physical asset that the company has. This startup valuation method is good for the existing records and receipts. It provides an excellent overview of the investment and intangible assets. Brand loyalty gets a better and fairer picture with it. It means the startup is valued below the actual worth.
To briefly conclude, it’s important to find out the best startup valuation method. For your business to empower, it’s important to go for the right startup valuation way. Make sure you choose the right valuation method for your enterprise.