The valuation of a start-up, especially in its start-up phase, is not based on exact science or official methods. It is rather a question of playing on the future forecasts of its activity. Indeed, when it has not yet proven its worth in the market, it is not easy to determine the value of a young company, for this you will have to take help of Start-up Valuation Services.
Although very delicate, this estimate is nevertheless essential, in order to attract the most investors to invest money in his business. The operation can also be carried out by an expert, like Start-up Valuation Services providers.
In modern language, a start-up is a young company full of innovation, which emerges in the sector of new technologies. But it is also a state of mind, a vision carried by its founder, on a market in the making.
Before creating a start-up, you should know that to be able to bear this name, the company must meet the following criteria:
- Strong growth potential;
- The use or creation of new technology;
- The need for fundraising to finance its activities;
As a preamble, we must remember two things:
- The valuation of a company is not an exact science,
- It is difficult to value a young company which has not yet proved its worth, which is moreover in a sometimes uncertain market.
Clearly, the valuation of a start-up is the art of avoiding uncertainties.
Mistakes to avoid in your start-up valuation
Fear of dilution often leads entrepreneurs to unjustifiably overestimate the value of their company by applying rules of thumb.
This can scare away investors. We often tell executives that it’s better to have a lower% of a company that creates value than a large percentage of a company that fails to take off.
Either way, be aware that investors don’t like to take control of a company. In the early years of the start-up’s life, the issue for managers is not the loss of control. Investors Need Founders Like Founders Need Investors.
In addition, we do not recommend that you put a valuation in your executive summary. The right entrepreneur only discuss valuation after the second or third meeting with the investors.
The best practice for the valuation of a start-up is to build a winning strategy by creating as many options as possible, and at the same time, reducing risks as much as possible. On the other hand, certain errors should be avoided. Often, they are mainly committed for fear of losing control of one’s business.
Overvaluing the start-up is not recommended, it will certainly discourage investors. Applying the rule of 20% maximum dilution to each round is also strongly discouraged, if you don’t know about this rule you can search on Google or you can just turn to experts, like the team of AKGVG, and let this work done by them correctly and efficiently.
Likewise, too ambitious a valuation in the first round could compromise the prospects of a second fundraising, and risk the dilution of the founder’s participation.
As it is evident, it is quite complicated to raise funds for a start-up and this is why Start-up Valuation Services serve as the right solution and this is why we suggest you to make use of it and let your business flourish at its best.