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What’s Your Startup Actually Worth?
9 Tips To Figure It Out

 

 

Question: What’s one tip you would give an entrepreneur who wants to put an accurate startup valuation on their early-stage company?

 

1. Be Reasonable and Relative

“Look around and see what other companies similar to yours are being valued at. If you’re in Chicago, you need to look at other Chicago companies, not the latest and greatest in Silicon Valley. Then pick a number that’s justifiable to both you and your potential investors. Make sure not to make it too high, or you will scare off investors or risk having a down round later in the process.”

 

Nathan Lustig | Co-founder, Entrustet

 

 

2. Ask Around!

“As an early-stage startup, you’re probably not going to be valued based on revenues or other typical metrics used for valuing larger companies. Your valuation is going to be much more subjective. To get a sense of what it might be, ask different players what they would value you at — VCs, angels, advisors, big companies — and see if the figures gravitate towards a similar number.”

 

Stephanie Kaplan | Co-Founder, CEO and Editor-in-Chief, Her Campus Media

 

 

3. Consider the Ramifications

“Entrepreneurs in early-stage firms can benefit from low valuations. When your stock is cheap, it benefits new employees and investors who can still get in at the ground level. Before pursuing a 409A or other formal valuation of your firm by an accounting or advisory company, make sure you speak with advisors and understand the implications of getting your firm formally valued.”

 

Doreen Bloch | CEO / Founder, Poshly Inc.

 

 

4. There’s No Such Thing!

“Valuations for early-stage companies are all over the map. Tech startups always demand higher premiums than retail companies, businesses with traction and paying customers are usually better valued than mere concepts, and the history of the team and even their geographic location can impact valuation by up to three times. It’s more important to have the right investors than the right valuation.”

 

Matt Mickiewicz | Co-Founder, Flippa and 99designs

 

 

5. Read Up on Intellectual Property

“Most of the value in a startup is the intellectual property, but the average entrepreneur doesn’t know enough about the topic. Since you can’t copyright an idea, you need to know what your company owns that you can put a dollar value on.”

 

Thursday Bram | Consultant, Hyper Modern Consulting

 

 

6. Speak Up!

“Don’t be scared to ask for help. Turn to a mentor or advisor that has a background in valuations. Accurate valuations could have more variables than you would consider. Someone with more experience in the industry and valuing companies is less likely to miss a material influencer in value.”

 

John Hall | CEO, Digital Talent Agents

 

 

7. Comparables Are Key

“Comparables are essential. Base your valuation, and support it, using industry comparables. The closer they represent your company — not only in model but also in size — the better. It’s the most accurate comparison you can make.”

 

Nicolas Gremion | CEO, Free-Ebooks.net

 

 

8. Are Your Projections Valid?

“Be reasonable. Investors are looking for returns, so the higher the possibilities, the less ownership they will have to take for the same amount of money to generate a higher return. Your job is to convince them that your projections are valid. “

 

Brent Beshore | Owner/CEO, AdVentures

 

 

9. Free Cash Flow to the Firm

“I see a lot of entrepreneurs value their company based on future values, invested time and money, emotion and other insubstantial metrics. The only thing that matters (besides patents and intellectual property) is your free cash flow to the firm — what does the firm make when all of its expenses and obligations are paid? That’s the number you want to use in your valuation.”

 

Lucas Sommer | Founder CEO, Audimated

 

 

Photo Credits

The YEC | Renjith Krishnan | freedigitalphotos.net

Author : Young Entrepreneur Council

The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world's most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

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