Which Factors Can Impact a Startup Valuation?

During the different stages of a startup, from seed to IPO, the ability to raise money is a question of survival. One of the main issues the investors and stockholders face during that process is the valuation issue - 'What is your company's pre-money value?', or in other words, 'What equity percentage of your company do you offer in exchange for investors' cash?

Often, entrepreneurs do not paint an orderly valuation process but evaluate the company based on profit multipliers embodied in previous transactions that have taken place, often in the same industry in which the startup is active. Such an approach can make the fundraising process unsuccessful.

How about we survey a few hints together to assist with staying away from these sorts of circumstances. There are several vital elements concerning deciding startup valuations. Two of the critical factors are:

• Team and Technology
• Market Size and Forecasted Revenue

Team and Technology  

Investors invest mainly because of the team, not due to the product. They need to be convinced that R&D team members – especially those responsible for development – are gifted and equipped for accomplishing the fundamental specialized objectives. Financial backers likewise need to see that colleagues are straightforwardly intrigued in a company's success through different equity packages, including stock options or company shares.

Also, financial backers need to get a good judgment feel of what amount of time and cash it would require for any expected contender to duplicate your innovation. The higher the creative boundaries are, the higher the worth of your specialized resource, hence the higher the startup valuation.

Market Size and Forecasted Revenue

Investors, especially venture capital firms, invest in the founders' vision. They test the expected market size, forecasted revenue and high return on investment, and an exit event in a short period, usually 2 to 5 years after their investment. If investors feel that its market share will not be substantial, it will prevent any future possibility of raising capital.

Many times, to avoid future dilution, founders provide an exaggerated value to the startup. The inflated value can keep the arrangement from occurring. 

The company should create a business plan which includes a 2-3 year forecast of reasonable revenue based on realistic assumptions.

To determine the actual value of the startup, you can use Equitest's business valuation software to calculate the business value in minutes, for free.