Valuation of companies or startups is not an easy task. It can be quite tricky and difficult too, especially for the investors who have the fear of risking their money or funds in a wrong sector. Moreover, the situation becomes more critical when it comes to early – stage investors who tend to invest mostly in startups. However, the situation remains the same here. This is because most of the times, startups have very less records or in some cases, no records at all. So, it becomes extremely difficult for the early – stage investors to value a startup.
So, the question which arises here is regarding how does an early – stage investor value a startup. The first thing that should be considered here is the calculation ability of the investor. Investors, both experienced and early – stage ones have a lot of knowledge about the market. They follow some kind of estimation methodology in order to identify and make sure about the intrinsic value of a particular startup or company.
Another thing that should be kept in mind is that startup valuations are more critical as compared to the valuation of other mature companies. Therefore, the early – stage investors should definitely analyze the financial data so as to make sure that they will be investing in a profitable business.
Now, there are certain categories that can be used by the early – stage investors in order to value a startup. Let’s get into more details about these categories:
- Concept or idea: The core of any startup is the concept or idea upon which it is based on. If an early – stage investor likes the idea behind a startup, then s/he will definitely love to invest the finances. So, it is very important to have a clear concept or idea in order to make the investors value a startup.
- Team work: The staff or the team members of a startup should have the capabilities and experience in order to seize the potentials related to the business. Early – stage investors will definitely value those startups which have successful entrepreneurs with full commitment towards their business and capable team members with technical and managerial capabilities including relevant working experience.
- Business elements: Early – stage investors often take into consideration certain elements related to the business including its projected growth, geographical stability, business scalability, demand at the market and many others.
- Products and services: The investors also analyze the purpose behind the products and services served by a particular startup in order to make sure that they will be investing in a profitable business with future potentials of further growing up.
- Level of threat from competitors: It is good to have competitors at the market. However, it becomes very much crucial for early – stage investors to analyze the level as well as the number of competitors that a particular company has got in the market.
- Miscellaneous analyses: Apart from doing general analyses on startups, the investors should also focus on a few other things including its collaborations, partnerships, required funds, available resources before making the final decision of investing on them.