How‌ ‌Valuation‌ ‌will‌ ‌improve‌ ‌the‌ ‌net‌ ‌worth‌ ‌of‌ ‌a‌ ‌start-up‌

Hence it is important to identify the factors which help in improving startup valuation. The most important aspects of startup valuation are:

• Any amount of money which is taken by the business; and
• The amount of equity which is given to the investors.

Along with the above, investors are keen on knowing the amount of money they receive at the exit. However, in any funding provided to a start-up there is a saying that the amount you receive in funding must be provided back to the investor. If you receive US$ 1 million in a successive investment round, you must pay back US$ 1 Million along with any other amount back to the investors.

Things to know before valuing a startup

There is no hard and fast rule to carry out valuation using a particular method. As a rule of thumb, there are specific things to consider before valuing any startup.

• Start-ups have some secret 

The market has numerous opportunities for any new product. However, when a product is launched, it must be attractive to the public. There are different opportunities in the market, but very few people recognize such opportunities. A simple software product may be valued at a less rate but may have public appreciation. None of the variables that measure the value of the startup are known to the public. These variables that help in identifying the value of the product are privy only to specific individuals which include promoters and investors.

• Opportunities are only useful for some individuals

Opportunities for businesses and startups come and go. One opportunity may be useful for one startup, which may not be of use to another startup.

Take the example of Facebook’s acquisition of WhatsApp for more than USD 15 billion. You may think that there is no connection between these two giants and how it adds to the valuation figures. On considering two instances below we can see the value of an opportunity. 

• If the same acquisition had been carried out by KFC, then you may think that real value could be added to their business. They can utilize WhatsApp to inform customers about their order and this would increase their sales.
  
  
• Facebook’s acquisition of WhatsApp was to improve its strategy related to messaging capabilities and letting the world know how they operate. Connection is the main strategy which is utilized by Facebook.

Now if we consider tech start-ups, they can come out with products that have solutions for day-to-day needs. Consider the payments gateway Paytm, which is used widely across India. Having cashless services and introduction of digital payments was their solution to all classes in India.

Factors to Improve Valuation of a startup

The following factors must be considered for improving valuation of a startup:

• Customer Base

If your startup has a strong customer base, then you are likely to make your business a success. Even if you do not have a market, you can make a market for your business. When you create a market for your business, you must derive some form of revenue, or you would not make money. Consider the example of Facebook and Google that have their own revenue models just through marketing and advertising. 

So, if your startup does not have a customer base or a product that attracts customers, make a plan which would help you identify probable areas. To increase your revenue, you can choose a model of having number of returning users to utilize the platform. Due to this, potential investors would understand your business model and where you can derive revenue from.

• Girth and Potential

Investors would be interested in the following questions:

• When was your startup founded?
• Who are the main competitors of your startup?
• Do you have any form of business plan?

They are interested in knowing all these questions for making an investment. You need to have a plan to show that you are ready to scale up and take control of your business. You must have charts depicting your company in 1 year, 2 years and 10 years showing the progress of the company.

• Making Profits

To increase your startup valuation, you must show investors that your startup can make profits. You must show that your startup is not just going to make profits, but also have market share and post profits. However, investors understand that making profits is not the only thing for startup valuation. Investors just need to see that there is some form of potential in the business idea.

• Market Traction

Value of your startup would depend on the amount traction it has amongst consumers. Brand awareness is vital for a startup to gain traction in the marketplace. It shall differentiate your products from the competitors. 

Conclusion

Valuation of a startup can be a hard, long, and daunting process. Such process is unpredictable as it is valued by third-party investors. The amount of funding which you may derive out of a valuation process is not certain. Only thing you as an entrepreneur can do is to focus on the key elements of the business. Such factors would improve the net worth of your startup.