How Much Is Your Start-up Worth, And How Do You Valuate It?
If you are a pre-seed stage start-up, the valuation of your business is easy: pick a number! This means that you are currently valuating nothing more than an idea on a piece of paper. You can assign it any figure you wish however, that does not mean that you will actually get an investment anywhere remotely close to what you are thinking it is worth it.
An increase in the valuation of your start-up – better said a more realistic valuation of your business – can only be discussed about as you build your product; this means, you need to have a prototype as a minimum, or a POC (proof-of-concept) with a potential client, or actual paying customers for either your product or service.
If you cannot bootstrap or secure some initial funds from friends and family, you need to be aware of the fact that raising equity (i.e., getting money from investors) will require you to part with shares you own in the business. How many or how few shares the investors will demand in exchange for their investment is a matter of negotiation (we will discuss this aspect in detail, in further articles) between you and them.
But - and this is where matters become very interesting: there is no standard formula which says that for 10% of your shares in the business, an investor should give you X amount of money. No. How much equity you release to your investors is directly dependent on two factors: how much money you need, and how much your business is valuated at. To put it even simpler, the less your company is valuated at, the more equity you will have to part with – and the opposite is also true.
It is very clear that if you are the founder of an early-stage start-up, you would want to valuate your business very high. It is also clear that just because you are an early stage start up, and you do not have an established market, customers, revenue stream, track record and so on, the investors will try to valuate your business as low as possible.
The valuation of an early-stage start-up is like an auction, if you wish – in the end, the auctioned item (your equity) will be sold for whatever value someone (the investors) is willing to pay for it.
Most of all, what we advise all our Business Configurator start-ups to do is to be realistic, honest and transparent: the reputation that you, as a founder, build for yourself from a very early stage in your start-up journey will stay with you for a very long time.
If you are unsure where you stand right now, or if you seek absolute clarity on your path to scale or go-to-market, perhaps you need to consider joining our start-up Business Configurator because, in a world where most investors’ attention span is no longer than three seconds (trust us on this!), you do need to stand out, don’t you?
We can offer you clear and tangible solutions to all these pinch points and more. And, as a plus, we are solely dedicated to sustainable start-ups. We can help you configure your start-up for both profit and purpose and, after 12 weeks of intensive business coaching, mentoring, dry-pitching, and networking with industry experts, angel investors, venture capitalists and other start-ups in our community, you will see the enormous difference we can make: we optimise your business to be investment-ready.
Join our Configurator to develop your product/service and be confident about what it can deliver to your customer base. Apply now.