Start-up Valuation Services: All you Need to Know
December 06, 2022
Start-up valuation is the process of assigning a number to the worth of a start-up as a potential business. In simple terms, it quantifies the value of a company. Every entrepreneur needs to undergo this process when searching for a co-founder or equity-raising funds from the market.
Why do you need start-up valuation services?
Startup valuation helps investors determine the fair amount of equity they will get in exchange for their funds. Utilizing valuation services can assist in raising funds at the right moment. Start-up valuation services bring in the right investors with sufficient funds at the right time.
When the funds (personal equity/bootstrap) are insufficient, the valuation services serve as a bridge between the VCs, the angel investors, or other start-up enablers and the start-ups. The start-up valuation service provider also helps identify project risks and return on investment (ROI) for the project. This is critical information that the investor often uses before deciding on an investment. The services offered by these start-up valuation firms also include litigation, dispute resolution, and strategy development in addition to assistance with different compliances and financial reporting.
Why do you need start-up valuation services?
- It offers a reliable evaluation of a company's value.
- It examines the financing structure and potential profits of the business.
- It advances financial opinions on matters of litigation.
- It helps in designing an exit strategy.
Types of start-up valuation
- The Berkus method - The method projects the value of the start-up in the pre-revenue phase by assigning monetary value to five fundamental metrics of success, which are as follows:
- Basic value,
- Strategic relationships in its core market,
- Production and sales.
- Team (Founders)
This method helps the founders and investors avoid false financial revenue projections of the company.
- Cost-to-duplicate approach - It is based on estimating the costs associated with starting another business exactly like it from scratch. It entails accounting for all fees and expenditures related to the company and its product creation, including the acquisition of its physical assets.
- The comparable transaction method - The comparable valuation, sometimes referred to as the multiples valuation, is a market approach valuation technique that determines a company's worth by comparing it to its peer group. It uses a number of multipliers and ratios to find the value of a company.
- Risk factor summation method - It is a pre-money valuation of the start-ups in their early stages. It is a method of valuation that places an emphasis on the risk involved in starting a business in a certain sector and region. The lower the risk, the higher the valuation of the start-up. It takes the following risks into consideration:
- Stage of the business
- Funding/capital risk
- Manufacturing risk
- Technology risk
- Sales and marketing risk
- Competition risk
- Legislation/political risk
- Litigation risk
- International risk
- Reputation risk
- The Scorecard valuation method - The scorecard approach modifies the average valuation of previously funded firms in the area and compares the target firm to typical angel-backed start-up ventures to determine its pre-money valuation. Only businesses at the same developmental stage may be low compared in this way.
- Discounted Cash flow method - The present value of estimated future cash flows is determined using a discount rate. When evaluating whether future cash flows from a project or investment will exceed the value of the initial investment, investors might use the concept of the present value of money.
- Book value method - The book value method is based on asset valuation. For a startup, the company’s book minus its liabilities. Comparing the book value and market value of shares can be a useful valuation approach for determining if shares are properly priced.
This is an enabler in designing the action plan for achieving the targets. A proper valuation report aids in finding good insurance offers that are valuable in protecting the business from any uncertainty. It is essential for maximizing and leveraging an organization's negotiating power; once the actual value is known, the company gets a clear comparative advantage in the market.
Resurgent India Limited
Resurgent India Limited is one of the best start-up valuation service providers in India. It has a talent pool of 200+ professionals who, with their extensive experience, help businesses find the best solutions for their companies. Our start-up valuation services are unique and one of a kind – we develop solutions in adherence to globally accepted quality standards. Resurgent India is a pioneer in providing financial solutions. With 6000 plus and a growing family of happy customers, we aim to contribute to building a transparent funding infrastructure in India.