Driving valuation methods for your Startup

Valuation methods - cfamedia
Credit: bizjournal

What are your best chances of getting the best outcome for your Startup? Having a firm grip on the drivers of valuation for your tech Startup, with the optimization of your investment can boost your chances of scaling up your venture.

Various factors, do contribute to the exponential growth of your Startups, such as the type of business you operate, its life-cycle, assets of talents available to you in that field and the market forces in your region. All these, do impact on the valuation of your Startup.

Startups seeking funds from prospective investors, might not understand the valuation methods involved in finding these out.

Taking the route of a valuation process presents an advantage in scaling Startups. Below are some of the methodologies required in the valuation of Startups:

Revenue multiple valuations
This method considers the market sales price commonly used in measuring the value of Startups. One method used, is to gather insights from Startups, who have previously raised fund in the Startups ecosystem.

The revenue multiple valuations are comparable to the Discounted Cash Flow, (DCF), which will be discussed next.

Discounted cash flow
Most investors accept this valuation method approach because of its simplicity in breaking down the points of evaluation in defined periods. The analysis considers a projected cash flow for a period of three to 10 years.

With a projected turnover that can be reliable and assured through patronage from existing clients, this model is assumed to be sufficient to get potential investors on your side.

Note that this is not always true, especially, if your business is at its early stage. If this is so, then, you may have to try another valuation method.

Gross Market Value (GMV)
The GMV methodology is commonly used by digital platforms, as this approach enables them to assess the potentiality in market penetration, thus, giving them the leverage to arrive at a valuation that they can defend in the presence of investors.

Assumptions gathered from the Revenue Multiplier assessment and DCF, can be used to back up this approach.

Cost to replicate method
This approach as one of the valuation methods is useful in assisting Startups to replicate a no-revenue business that has designed a substantial IP.

You should ask yourself this question, as a Startup; what would it cost an investor to replicate what you have built? Months or years, millions in cash, perhaps.

Investors have been around for long not to understand the dynamics of valuation methods for a business model, especially, that of a Startup, therefore, the onus lies on you to have sufficient knowledge on how to present your business to them, for them to be interested in investing in your Startup.