How do I evaluate my Start-Up?
It’s hard to reply because it’s hard to calculate a business’ value without a record so the best you can do is obtain a track record to gain a more approximate value and more attractive to present to an investor.
How does Business Angel evaluate a Start-Up?
In the first place they evaluate the team’s potentional, they then study the business plan and lastly contemplates the result of the very own negotations and the evolution during the process. Thanks to these concepts many enterpreurs have and continue on achieving financing ammounts which are hard to believe. To sum it up: it all rides on the expectatives you managed to transmit to Business Angel.
You must differentiate the value of a pre money Start-Up from post money: a lot of people consider that the value pre money is 0 if there’s no activity. Post money is easy: if a business gets 500000€ for 25% of its assets then the 100% of their assets will have a value of about 2M€.
To calculate the value without previous activity, several investors use a standard but no so accurate method. Average value of 600000€ with a minoritary participation of about 20-30% of its assets.
Another of the employed methods in the Multiple Comparable Transactions: it checks the paid price by other investors in similar previous Start-Up operations.
The most accurate evaluation with a year’s activity for a Start-Up, is to use the price over exploiting benefits, EBIDTA o the multiple over total earnings. Both cases demand previous sector’s cases’ look-up and study fusions and buyings of similar businesses.
The guesses for second rounds of investment are more realistic because they have some years’ records which they can look up. The employed strategy by investors if the Free Cashier Flow Discount. This methord tells us the money ammount the investors will win as long as the business is around. It’s hard and complicated to calculate, but it’s the one which comes closer to the real value of the Start-Up.
As a conclusion we can say that most times you don’t know the real value of your business until you manage to capitalize it, so get yourself a pro team and believe in your project.
I once heard an investor say:” If I lose my money you lose your health because I want you to lose your life in the attempt“, that’s something rough to tell you but what they want is to have stable rents and they’ve got a hunch which tells them that investing in your Start-up is a wise move.