Valuating a startup might be very different from evaluating other businesses. An established business would have a lot of data to analyze making it easy to understand the performance of the business.
But evaluating a startup with very little background data to study is going to be more complicated. As an investor, if you plan to invest in a startup remember that it is not going to be a straightforward process.
Startups might be in need of reliable investors at several points. Investors who invest in new ventures should be able to master the art of business valuation so as to ensure accurate attention to details.
To know where the business would stand in the market, you should know where it stands at present
Startup valuation would give you the real worth of the business at present. This would be an indication of the value attainable in the future. As an investor, you would thus be able to get an idea of where you are investing your capital.
The market valuation is a great first step to understand the position of the business with respect to the others in the same segment. After taking into account the various comparables and projections you would then be able to predict the worth in the long run.
Market multiple approaches
For the above conclusion to be drawn market valuation is what is chosen. Market multiple approaches to business valuation are something that a lot of venture capitalists prefer. Though this is not a very accurate method it gives a closer picture of what the worth would be by comparing the case of similar acquisitions that happened in the recent past.
Such assumptions would have to be taken because there is no proven method to accurately predict a startup’s growth and performance.
The real difference
When the earnings and the account profits of the business are already available, as with established businesses; valuation is much simpler. For startups, there is a lot of inherent inconsistency. Till the cash flow stabilizes and a pattern develops there are different parameters to study to understand the worth of a startup.
The supply-demand consideration is a good place to start. Even if there is no stability established if there is a huge demand for the products or services offered by the startups and if it stands out in the competition then it surely would have a bright potential for growth.