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How to Value Your Startup? - 8 Effective Formulas To Get You Started
Finnish company IQM raised €11.45M for their quantum computing hardware, Fintech Pleo raised $56M from a US investor and Minna technologies from Sweden obtained €5.6 M in another round of funding.
And while the numbers are inspiring to new entrepreneurs, they do beg the question: how do you value your own startup? A quick online search reveals that it’s even more complicated than you might think. There are dozens of formulas, and nobody seems to be relying on the same one. Which is why this article will focus on x8 tried and tested, actionable methods you can use to see how investors will value your startup. We have also compiled a cheat sheet so you can use to easily compare how different methods would change the valuations for your startup.
What Influences a Startup Valuation
Valuations are never set in stone. They vary a great deal depending on a number of factors, both positive and negative. And the main correlation, given the nature of startups, has to do with growth.
Here are a few examples of positive factors:
- Company traction: measured in active users. I.e. Facebook was already on track to gain its first million of users by the time it received nearly €500K from Peter Thiel in 2004.
- Team expertise: It’s no accident Pinterest was listed as Time Magazine’s Best website of 2011, months after it launched. The fact that founder Ben Silbermann came from Google certainly helped.
- Prototype or MVP quality: Brian Chesky and Joe Gebbia had difficulties paying rent for their San Francisco loft. Their took a few pictures, created a simple web page to attract temporary renters and soon enough had 3 paying guests. This is how AirBnB went from a successful prototype to a multimillion dollar business.
- Industry “hotness”: Launching a startup in the lift-sharing niche? The gold rush could already be over. Working with blockchain or machine-learning? These are hotter industries in 2019.
On the other hand, launching a startup in a niche or declining industry with large competition will affect valuation negatively. Poor management, buggy or faulty product and low margin projections will also affect how much money you can raise.
An Overview of Funding Rounds
With startup valuations, timing is everything. After the early seed money round (referred to as the F+F stage for Family, Friends and Fools), venture capital fundraising time frames are measured in “series”. So here’s your quick recap of the main differences between Series A, B and C.
- Series A funding: The very first funding round, and an important milestone for any startup. It provides early capital for the company in exchange for...
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