Pricing your company is necessary in the investment process. However, most startups struggle to evaluate their ventures when they approach investors for the first time. If it comes too easy for you, then it is probable that your valuation is wrong. Usually, there is little or no history, no or little traction, your achievements up to date might be difficult to quantify, etc.
Below you will find a few tips that can help you get your business in getting an accurate valuation.
The factors that should be taken into consideration are:
- How good (clear, strong, realistic) your business plan is.
- Team Completeness – all or most of the key skills are in the company, the team dedicates most of its time to the business.
- Attractiveness of the market and potential exit – how much money can be made and how soon.
- Product completeness – MVP, working prototype, beta, ready product; the more you have, the better.
- Traction – how much value has been created in terms of partnerships, user base, and sales.
- Cash already put to your business (from your own pocket, from investors or other sources).
Early stage companies that we tend to deal with should be looking at:
- £100k – £450k – the initial MVP is done, the business plan is clear, the team is almost complete.
- £450k – £750k – working prototype, first users/customers, team full time, some cash already put in the business, very attractive market with good chances of making money;
- £750k – £1M – very attractive, booming market, first revenues in place, complete team,
- £1M+ – revenue making business with strong traction and financial forecasts;
Obviously, the above is just a rough indication and often valuation might go up or down based on very specific circumstances, like unusual skills that are difficult to find, team experience, IP, impressive sales or market situation. We always advise you to be very flexible and agree the final valuation with us or angel investors as we discuss your business details. A lack of flexibility could mean a waste of time and potentially lead to loss of investment.
Finally, there are some tools available to entrepreneurs that analyse different business aspects and give a better idea of what you should go for. This shouldn’t be treated as the ultimate answer, but can be very helpful. One of them is called D-Risk IT and can be found in the App Store, Google Play or by following this link.