Most entrepreneurs who establish startups want to one day make an exit and sell the company when its value is hundreds of millions of dollars, if not billions. But what do they know about company value? Here are the essential things every entrepreneur must know about company valuation.

If you are not familiar with them - it is recommended to stop for a moment and read. The list will help you along the way when you will build the next unicorn.

1. Do you know What determines a company's valuation?

In its most basic sense, valuation is defined as the multiple of the number of shares outstanding by the price per share. However, company valuation is a science by itself due to the mix of qualitative and quantitative factors that go into it.

Value of company = Shares outstanding * Price per Share

Given the basic definition - several factors may affect the final result. Here is the list - not in order of importance.

1. Stage of the company:

• Early-stage valuation is impacted by factors such as entrepreneur experience, the team, the potential growth, the perception of overall opportunity, and the amount being raised.
• Later-stage valuation heavily relies on actual financial performance and projections.

2. Funding contest: there is a positive correlation between the number of investors who want to fund a company and the value of a company. As the number of investors increases, the value rises.

After all, the crowd's wisdom also plays a role in the valuations ad.

3. Leadership team experience: because there's a perceived negative correlation between more experienced entrepreneurs and risk, the valuations of companies with more experienced leadership teams will be higher. An experienced team with successful experience as entrepreneurs will testify to a higher value of the company.

4. Size and trendiness of the market: Your market size (e.g., TAM, SAM, SOM) and the growing demand of a company's market will also have a positive correlation with valuation. The bigger the market, the higher the value - as it is said - if we throw a stone in the sea - we will manage to hit the water.

5. An investor's entry point: Some investors have a valuation investment range. For example, investors might only invest in companies valued at $5M or less. These investors believe that this way, they can earn higher returns.

6. Financials and other numbers: There is a direct correlation between how well a company's financials and numbers stack up (against its given industry and competitor benchmarks) and its valuation.

There is a positive correlation between the financial success of the firm over other companies in the market and the company's value. If, for example, the company's profit margin is 20%, but the industry average is 10%, this will teach about a better ability of the firm and consequently a higher value of the firm.

7. Economic climate: There is a tentative positive correlation between the stock market's performance and the valuation of a company. That's to say, if the stock market is performing well, valuations will be higher and vice versa.

Alternatively, in times of crisis in the stock market - companies and people do not tend to invest, especially in risky companies, such as startups, and therefore their value is negligible.

Conclusion

In this article, we have presented four main types of pitch decks and five possible structures for delivering the slides. Suppose you are looking for an easy and simple way to evaluate your business, manage your cap table, or create a pitch deck. In that case, you can try our intuitive ai based business valuation software or our business valuation calculator, or you can contact us for free advice or schedule a demo.