When starting a business, chances are you are mainly focused on trying to get everything together so you can make that first sale. Part of that is finding cash to fund your needs. In order to attract investors, you have to know the valuation of your company or how much your company is worth. This can be a hard figure to come to with a start up because the chances are really good that your company has little to no actual cash value. Instead, you will be looking to put a value on the potential of the company.
This is obviously not an easy thing to do. Many new business owners struggle with valuation because it isn’t as easy as crunching some numbers. In order to make things easier for you, here are some tips you can keep in mind while you are figuring your business’ valuation:
Determine Value Carefully in the Seed Round.
The seed round is when you are just getting started and trying to get initial funding. You have to be aware that whatever you value your company at during this stage will be expected to increase substantially when you value your company later on. So, you have to be very careful not to value your company too high. Take a look at this infographic to learn more about valuation.
On the flip side, you also want to avoid valuing it too low. If you underestimate, you won’t get all the funds you need, which would curb your company’s growth. This could spell trouble when you try to get more money. Investors won’t be happy if they don’t see results from their money. They likely won’t be too quick to invest more.
Start With How Much You Need and Investor Percentage.
When you begin to figure your valuation, you need to start with how much money you actually need to get things started. Come up with the minimum amount needed. Make it clear this is the least amount of money you need to accomplish everything that has to be done to get the business up and running.
You also have to determine how much ownership to give away. Remember that you need to keep enough to have something to offer I the next round, while also maintaining your majority hold on the company.
Determine Your Valuation.
Once you have these things determined, you need to create the valuation. Your valuation will be calculated based on the percentage and the minimum amount. If your minimum is $100,000 and you are offering that at 5 percent ownership, then your company value will be around $500,000.
Consider Other Factors.
Of course, you can’t just calculate a figure and expect that to fly with every investor. You should also figure in other factors. One factor that is often considered is the rate of expected growth and how your company compares to similar companies. You also can show investors reasons to value your company higher. For example, if you can show that your company has strong brand recognition, this adds to the value. You could also showcase any degree you may hold, like one from MVU Online, which adds value to the company.