Startup Classroom: What is startup valuation and how is it done! Know its ABCD

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Business Startup Classroom: If you are a little bit interested in the world of startups, then you must have heard the name of valuation, or if you watch Shark Tank, then you must have seen how sharks extract the valuation of any startup in a few seconds and accordingly Offers funding from. Valuation is a very big topic in itself and it is derived in different ways according to the stage of startup, so through some more articles in this article series, I am trying to explain to you how it works. Is. So let’s get started!

What is valuation

First of all understand this word itself, you must have read that Swiggy, Uber, Zomato, Ola all startup companies are valued in hundreds of thousands of crores, and the amazing thing is that most of these companies are still in loss i.e. no money Is making, yet is continuously raising funding and investing money.

So if you understand in native language, then valuation is the calculation of profits to be earned in the future of any startup, that is, many times you have seen such startups also taking money on the value of crores, which have just come in the market and did not make money. Yes, here the valuation depends on many parameters, but for the time being understand that this is a calculation that you show to the investor that with this product and method in the next 5 years your company will xx Will make money and to make it you need xx money now, this is the simple definition of valuation and funding.

Although there is no fixed model for extracting valuation, every investor works on his own account and company, industry, team, product, timing, uniqueness, but in this article they know that when your company is new then how the valuation comes out. .

How is the valuation of a new startup determined?

As we read above that whether the company is new, old, in profit or in loss, everyone has a valuation, so let’s understand below what method works in the valuation of a new company.

Founder

You must have heard that people put money on the rider and not on the horse, the same thing is applicable here too, seeing a founder, it is known that where this company is going to go, your vision, energy, creativity, passion, risk taking Ability, networking skills, sales skills, team management, leadership all cost money.

Team

They say that if you want to go long, you need a team. If your startup has just started, then the team is playing a big role, joining the vision of the team, craziness, skills all matter, it matters a lot in the initial valuation.

product

Now comes the role of your product, what you are making, how you are making it, how different your product is, any special achievement like copyright, patent, innovation all count.

industry

Here the role of industry matters a lot, a term comes TAM “Total Addressable Market”, that is, the market you are going to, how big is that market, how is the paying capacity of the customers there, who are the people already Only in that market, what is their market share.

How will the valuation look now

There is no fixed way and all the above factors matter a lot in your valuation. Nevertheless, a simple math is that let’s assume that you have thought about a business and to run it for the next 3-5 years, you need 2 lakhs, you already have one lakh. You are making a projection that in the next one year you will earn Rs 5 lakh from this business. Till now all the shares of the company are with you or you two founders. Now you find an angel investor, to whom you go that you need one lakh, for that you are ready to give 10 percent equity of the company.

If that investor agrees and gives you Rs 1 lakh at 10 percent, then the current value of your company has become Rs 10 lakh, this is your valuation. However, in those companies which are especially in the initial stage, it is difficult to extract the valuation. That’s why all the above things matter a lot. However, if you want to know the valuation of your startup, then many CAs, startup experts, investors in the market can help you in this.