"Think of value creation, not valuation"
We are a start-up and have the same questions as you. What is the value of my Startup? Or how do I valuate my Startup? After spending good amount of time on researching about valuation, we want to share what we have understood about valuation and its investor perception.
Let us check these FAQs to get clarity about Valuation.
1. What is valuation?
o Valuation in simple terms means the share of a company an entrepreneur will give away to an investor in exchange for the money.
2. Is valuation an art or science?
o It is an art at the early or seed stage.
o Once the company starts the hitting revenues and increases the market share, it starts becoming science.
3. What are the challenges faced by the startups while valuing?
o No history: you are a newly implanted business and hence have no history to prove your financials
o No past revenue: Revenue generation in Startup begins after it has reached a Minimum Viable Product stage and has hit the market
o No track record: You have no records to base your valuation
o Conventional methods of calculating value are not possible
4. What are the important considerations to be kept in mind since Day 1 of your inception?
o Make a solid profile in a way that when investors or customers see it, they are clear about who you are, what do you do and what is your vision.
o Believing in your idea and then the execution skills is an important factor if you want to be successful.
o When at the idea or initial stage, think only about the Minimum Viable Product (MVP) and about the money and time invested.
o Take one step at a time, hasting the process is not a good idea.
5. When is the right time to raise money?
o When you have tapped all existing avenues and you feel that raising money will help them achieve necessary key milestones.
o Raising funds need lot of foresight and planning
6. Who should you approach?
o Friends, family and co-founder
o Do not start alone, take help from TRUSTED people.
o External investors viz family offices
o High Networth Individual’s, Venture Capitalists
o Micro Venture Capitalists help in unlocking value for all
7. What are the instruments that you can use to raise money?
o Compulsory Convertible Preference Shares (CCPS): These shares are corporate fixed-income shares that the investor can choose to turn into a certain number of shares of the company's equity stock after a predetermined time span or on a specific date.
o Commercial Papers (CP’s): Commercial paper is an unsecured, short-term debt instrument issued by a company, primarily for the financing of accounts payable and inventories and meeting short-term liabilities.
8. What is an investor looking for in your Startup?
o Solid promoters
o Promoters who have studied competition well
o Who have tendency to achieve and execute what they have set out to do
o Re-innovating your business model
9. What is the mint-set of the investors?
o Investors are looking to exit while investing, hence planning their exit is crucial
o They want to know when and how are they exiting, hence it is important to address about exit/ benefit of investors while pitching
· We hope that our efforts of creating best solutions and a single platform with all the up-to date resources which will make you understand about valuation and give you a different perspective. We have done a bit of a brain dump of thoughts of what we have learned from the research and case studies on Startup.
· The good news is that there are some parts you can leave it to us. We have built a platform that can benefit you with all the offline to online solutions regarding Startup advisory, nurturing and other financial solutions. We will also advise you on how to go about your Startup from inception and attracting investment opportunities which will help you to grow multi-fold.
· Feel free to reach out to us. This will also help us as we would like to get your feedback.
- Team, SKDA