The biggest question that arises when a startup begins its operations and starts looking for funding is how investors calculate the value of a startup before investing in it. Startup valuation is one of the most difficult codes to crack and without the assistance of a financial expert, the question may remain unanswered for many businesses.
What Is Startup Valuation?
Startup valuation means calculating the total worth of a startup before investors can put in their money in the business. Valuation determines the amount of funding a new business will generate from potential investors.
When founders approach potential investors, they are sometimes unable to present the exact valuation of their business that convinces the investors to fund the business. The main reason for this inability is the lack of proper knowledge or expertise and lack of understanding of the different factors that affect startup valuation.
Factors That Affect Valuation
Several factors contribute to increasing or decreasing the valuation of a business; however, certain key factors must be considered while calculating a startup’s value:
- Industry Value: The value of each industry differs as the goods or services from one sector to another differs. When the process is startup valuation is started, it is essential to keep the kind of industry the startup is a part of, in consideration.
- Demand and Supply: The Demand and Supply of goods or services offered by a startup are one of the most influential factors. The startup valuation of a business which deals in products or services which are high in demand will be more than the company which deals in goods or services which has less demand than its already existing supply.
- Valuation Techniques: The technique implemented to calculate the value of a startup profoundly affects the final valuation. There are several business valuation techniques available to compute a startup’s valuation, and it is critical to implement the most viable one.
- Stage of Development: The development stage at which the startup is at present is another factor that affects the final startup valuation. It also means the stage of funding required by the startup affects the value of a business.
- Investment That Interests Investors: If the investors find potential in returns they will get from the startup, the value of the startup will be more and investors will put in more funds in the business.
Startup Valuation is one of the most crucial steps before approaching investors and going in without proper knowledge may diminish the chances of the business getting funding. LetsComply acts as a Virtual CFO and assists young startups with their business valuation. To know more, call us at +91-9717070500 or send us an email at firstname.lastname@example.org.