Getting Ready for Investment – Valuation

EMW

15th August 2018

If your business is in its infancy, and any potential exit seems in the distant future, the importance of a valuation may appear relatively insignificant. However, obtaining and, more importantly, understanding the value of your company can help you improve its real or perceived value and is crucial when pursuing third party investment.

Below is a brief summary, please click here for the full article.

Often, any primary third party investment will be in exchange for equity (ie. shares) in your company. Without an accurate valuation you may either struggle to attract investors if the price is too high, or you may end up giving away too much of your company if the price is too low.

With various methods and formulas used to value companies, here are some of the main methods:

  • Asset valuations
  • Earnings multipliers
  • Entry cost
  • Industry rules of thumb

There are also various factors that will affect the value of your company – the biggest being a potential investor’s perception of your company and of its value: the more risks any potential investor perceives, the lower the value will be. Some of the common factors that affect valuation are:

  • The economy
  • Industry market forces
  • Supply and demand
  • Revenue

Additional considerations such as how well you control costs and whether there is likely to be any need for capital expenditure in the near future will also play a part.

  • The competition and recent exits
  • People

Valuing your company is very subjective and is more of an art than a science. Valuing a start-up or early stage business is particularly difficult due to the small sample size of data accumulated in comparison to well-established companies.

For more information, please contact Kirsty Simmonds or click here for the full article.

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