As a founder of a company/startup, you have assembled a team, done your market research, built an amazing product, and are excited to start this journey of continuous building. You are at that stage where you are excited to talk to investors about your product, your pitch deck ready to be shown at any moment’s notice.
And then you hear the question, What is the current and expected value of your startup? Or what amount are you raising and at what valuation?
Firstly, Don’t freeze or panic.
Secondly, one thing you need to understand as early as possible is that valuations are constantly changing. As a business owner: investors, venture capitalists, and even individuals would want to know what your business is worth now and the potential of your business to be worth in the future, and the market share, you can own to invest in your startup.
“Valuation is the analytical process of determining the current (or projected) worth of an asset or a company”
Why is Valuation Important?
Valuation allows you to accurately calculate the worth of all your assets by determining the FAIR market value of your startup. This in turn enables you to :
- Determine company growth
- Have a better knowledge of company assets
- Have good negotiations with prospective investors
- Access to more investors
- Establishing partner ownership
- Exit strategy planning
Valuations are required in several situations that involve but are not limited to company re-organization, employee stock/share options, shareholder disputes, mergers, or acquisitions.
Now you want to get started on your valuation, keep these in mind:
1. Do your Research
This can not be emphasized enough. You need to convince potential investors that you will WIN regardless of the competitors you have so graciously outlined in your pitch deck.
They need to know that despite the competition, you and your team can achieve significant growth. Understanding your business dynamics and the market will come in handy when you are ready to put value on your company and determine your assets.
This also gives you more confidence in conversations where you are trying to sell your startup. Investors like people who truly understand their business to a very strong degree and understand the market or how to win in the market they choose to play in.
2. Understand it’s a process
Valuation is a continuous process. Don’t be in a rush to slap a number on your value. Ask yourself, Why are you valuing your business at this amount? What do you intend to accomplish with this valuation?
Research again, Look at your competitors, understand their business strategies. Research the investment community. Who is investing in who? Who is investing in your competitors? Talk to the community. They say It takes a village. Be a part of the village. You can’t know it all but you keep learning, keep adapting, keep getting the knowledge required for you to have meaningful conversations with the RIGHT people that can help your business achieve its goals.
Expert rule of thumb : ( When putting out your valuation number for a Pre-seed company raising investment please ensure your % share of the company to give out is never above 10–15% depending on how you negotiate with investors this allows you to have more for follow on investment rounds and options for raising and also raise for funding that can get you to the next milestone and achieve projected traction, in other words, raise intelligently and not just because ), negotiate properly and read the deal terms and term sheets well before you onboard any partner…remember it’s a long term marriage.
3. Think Ahead
What is the current and EXPECTED value of your company? It’s not just about now. Always think ahead. Your initial valuation sets a precedent for all future valuations. Things are constantly changing and so will the business. A lot can happen between when you receive your pre-seed investment, seed, and even series A seed. You are still at that stage where you can’t predict everything.
Don’t price your value too high or too low. Keep in mind that whatever your valuation, you must be able to match it with your growth targets and numbers.
In summary, Rome wasn’t built in a day. Some of your investors would end up being long-term partners. Ensure value other than capital is being added on both sides of the value chain.
This is the beginning of a long series of events that determines the future of your company. Don’t relent, you’ve got this.
Keep Building!!!
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