Planning out a workable framework is the first brick that you put in while building a startup. Though this plan would include a number of things, the main thing to consider when determining startup valuation is the capital requirements.
For any startup which is in an early stage, raising capital becomes quite a challenge. There are venture capitalists ready to fund startups. However, it is also necessary for a startup to determine a good mentor who can guide the startup to its path of success. Ill guided advices may lead to your downfall. While determining startup valuation, firstly you need to be aware of your position in relation to your competitors. This is a crucial factor as it plays a vital role in determining the fund that you would require.
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There are a few questions that you need to consider while determining startup valuation.
1. How much are investors willing to pay?
A vital question to consider while determining startup valuation is what investors are ready to pay. The range of your fund to a great extent depends upon the quality of products that you deliver. Your past accolades and achievements play a role in determining the capital support that you would receive from different investors.
2. Of What Value Are The Competitors?
The valuation or worth of a company often depends upon the value of its competitors. When determining startup valuation, you need to have a thorough check on your competitors and what are they worth. Closely monitor the companies that have a higher valuation. Try understanding why they are worth more.
3. Is You Startup Lifecycle Long?
When you plan your startup, the lifecycle of your entire business too needs to be chalked out. This helps you determine various points in the business life cycle where investments need to be made. You can set targets and consider different turning points as pockets that would require investment.
Once you have a clear idea of the entire lifecycle of your startup, you can then calculate your company’s valuation. If you have a clear idea of what your objectives are and what you business is worth, you can very well start looking for a good investor.
4. Is It Too Early?
If you plan to bring in investors, you should first consider whether you are ready to take the plunge into the next level. This is a pivotal decision hence should be taken after much consideration. For venture capitalists, they normally invest against a considerable share of the business. When you are determining startup valuation, you should also be ready to give up a share of your business as the investor’s share.
It is also important to understand whether your business will walk on a path of profitability. If you are positive about your business and its profitability, it is better to delay your plans of fund-raising.
5. Is Your Target Market Big Enough?
When you create a product, you always have a specific group of audience in mind. However, if you want to expand your business, your product should be of relevance to users. If your product is such that it attracts a huge number of audience, you can think of expanding it. Try creating a product that is homogeneous. This way you would have a huge market for your product and expansion too will be quite easy.