WHAT STARTUPS SHOULD KNOW WHEN VALUING IN CAPITAL CALLS?

Tuesday, 12/04/2022 17:22 (GTM +7)

Valuation is very concerned for investors when startups conduct the fundraising process due to the representation of business’s value and potential.

Look at some approaches and perspectives on valuing startups from investors. Thereby businesses can consider and get ready to raise capital.

The importance of valuation for startups

Startups that carefully prepare in terms of valuation can convince investors.
It also helps founders make decisions faster when unforeseen events occur. They can be proactive in pricing, keeping benefits in negotiations.
The process of equitizing enterprise is more favorable.
Startups can be more credible with banks in loans.

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Angel Investor and Venture Capital Fund, which startups often look forward to, are not accessible if founders do not understand how investors perceive business value.
At an early stage, Angel Investors mainly focus on startups’ growth potential rather than current operation. Therefore, valuation is more visionary, often including leadership, product ideas, technology,…
Venture Capital Funds are often interested in startups with specific products, precise business models, and market expansion needs.

Emphasizing potential values of intangible assets, including core team, brand awareness, the number of users, intellectual property,… are considered future potential profits by investors.
Minimizing the level of risk by providing truthful information about performance, vision, strategies, market analysis information… of startups.
Focusing on solutions that realize development ambitions helps investors understand how startups use capital to achieve.
Understanding the importance of non-financial metrics that can convince investors of startups’ potential value, such as subscribers, downloads, and sign ups number,…
Assessing market position and business model with competitors in the same ecosystem and value chain.
Sharing startups’ values and expectations over 1-5 years and their causal.

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Unreasonable overvalue: if founders call capital through each round, business value must increase, and startups can fail because of not growing up to that.
Using tricks to increase value: startups should speak the truth and not make stories because investors often have much experience to realize the honesty or exaggeration of startups. Founders’ lack of consistency and tricks results in immediate disapproval of investors.
Unauthenticated facilities: startups often are valued based on past data and future projections. In case founders don’t have clear reports on operations, this was difficult to create confidence for investors about startups’ offered valuation.

Source: Collection

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