The entrepreneur who knows how much his business is worth can make more assertive decisions. Do you know how to calculate the valuation of your startup?
Valuation is the process of assessing the value of a company. In other words, it is the process of determining a company’s fair price. This is important for investors, who want to know whether a company is overvalued or undervalued before investing. For entrepreneurs, it is important to know the value of your company in order to attract investors and raise funds.
The valuation of a startup is a little different from the valuation of an established company, because a startup usually does not yet have a track record of revenue and profit to be considered in the valuation. Instead, the valuation of a startup focuses on its growth potential, team, product, and other factors that are taken into consideration, such as cash flow, equity, debt, sales volume, etc.
How do you calculate the valuation of a startup?
There are several different methods to calculate the valuation of a startup. Here are some of the most common ones:
Total assets + net income
To calculate the valuation, simply add up all the assets and the results from the most recent fiscal balance sheet. If, for example, your startup has 100,000 reais in accumulated assets (cash in hand or in bank, accounts receivable, raw material, goods, machinery, short-term financial investments, real estate) and a total of 50,000 reais in net profit in the last balance sheet, the valuation will be 150,000 reais. Although simple and quite conservative, this method is recommended for small startups, with at most two partners and with little time in the market.
The Zero Base methodology is also a very simple way to calculate the valuation of a startup. The reasoning is as follows: how much money would an entrepreneur need to build, from scratch, a company with similar or equal characteristics and segment of activity to your startup? The valuation, then, will be the value you find to answer this question.
For this, it is necessary to consider all the tangible assets that your company has. Let’s suppose that after adding up all the investments with space rental, raw materials, hiring staff, products in stock, taxes, fees, etc., you have reached a total of 300.000. This, then, will be the market value of your business.
This method of calculating valuation is more complex. The Venture Capital method (or Venture Capital) is a way to do valuation of startups with more time of performance. Therefore, it is used in companies more consolidated in the market and with a more well-defined turnover. If you are seeking funding for your startup, this valuation methodology shows how much profit your potential investor will have, in the medium or long term, if he invests in your company today. In other words, Venture Capital valuation assesses whether or not it is worth injecting money into your idea.
Valuation is a crucial tool for investors and entrepreneurs who want to invest or raise funds for a startup. There are several different methods to calculate the valuation of a startup and it is important to remember that the method chosen depends on the specific situation of the startup and the investors’ preference.