For mature companies, and certainly publicly traded ones, there are a number of valuation methods that are accepted by all. These would typically be price / earnings ratio or discounted cash flow, but both of these methods require solid data over a number of years and often are better suited to companies with more forecastable growth.
However, for early stage businesses, valuing a company is much more of an art than a science because the business will not have the long track record to use as a basis, and often the valuation is based on future expectations rather than present or past trading. These vagaries make the process much more difficult and, it has to be said, the final valuation arrived at more open to interpretation.
Accepting that valuing an early stage business can be a challenge, what are the top tips to arriving at a solid and defendable valuation?
To complicate matters more, the valuation of your business will typically be higher if you are aiming to raise funds via crowdfunding than if you are in negotiation with a VC firm, and probably different again if you are in negotiations to sell your business. Valuation is a complicated topic and one which is only lightly touched upon here.
The top tip then is to use a combination of all of the above valuation methods and this will undoubtedly provide a range of valuations. Hopefully the valuations will be similar and, if they are, this then gives a good guide to a realistic valuation. As the founder it is then important to be prudent and not to try and over value the business but to settle on something that can be defended.
in British English