As a startup, the early stages of your company will be highly frantic. Everything will seem to be moving at a hundred miles per hour. Because you were swamped with more critical concerns at the time, you may have only skimmed over some minor judgments. These smaller strategic decisions, on the other hand, may have an impact on how VCs value your firm in the future. One of these may be your startup’s valuation. This is important to both discern and to try and boost.
Here are 5 of our Top Tips to Boost Your startup’s Valuation
If your company is able to produce a product or service for which there are few competitors, investors will find it difficult to leverage the fact that they have other options. As a result, the value of your startup increases. To maintain a competitive advantage, startups can look for defensive intellectual properties such as patents, copyrights, and other defensive intellectual properties to help create a ‘wide moat’ that prevents new competitors from replicating your product/service, which will boost your valuation over time if the market continues to grow.
Perceived Value of Your Startup’s Valuation
The terms “real value” and “perceived value” are not interchangeable. If you want to boost your startup’s valuation, you must first improve its image. If you can control the narrative surrounding your firm, you can attract positive media coverage and help develop some ‘buzz’ about the business. Getting people’s attention will indicate to a possible investor that this is a firm that people are excited to learn more about, and from the investor’s perspective, this is an opportunity they don’t want to miss out on.
Your startup may be running smoothly right now with the sufficient manpower and office space so that you can continue to steadily grow. What if you experienced an unexpected rise of customers? Would you be able to handle this surge in demand, or would you leave numerous people with a negative first impression of your business, potentially losing customers? Rapid growth is likely if you can acquire financing in your firm, and if an investor can see that you have a well-prepared scalability strategy, it is an attractive characteristic for an investor.
Do Not Play All Your Cards Straight Away
There must be room for monetary return in the future for a potential investor to recognise added value in your startup in order for them to earn equity back from the company. As a result, to offer more value to your firm, show how you could potentially monetise your product or service in ways you haven’t yet explored. If you don’t have any untapped revenue streams, potential investors could think your firm won’t be as profitable in the future as those who do.
Have an Exit Opportunity
An exit strategy is usually required for potential investors to really consider investing in a startup. This is just so they can comprehend how they will be able to profitably access their equity assets. Even if you believe it will not be necessary, it is critical that your startup’s strategy includes an exit strategy, just in case circumstances change down the road and you need to exit.
Here are Some of the Most Suitable Exit Strategies for Startups:
Merger or Acquisition
A merger or acquisition is typically a lucrative strategy for a startup owner. This is where another company is interested in acquiring the startup or merging the companies together. This is a win-win situation for both parties, as the startup owner is allowed to bargain on his own terms, and the larger company gains a new customer base as well as any infrastructure the startup has in place. This method is ideal for entrepreneurs who enjoy the starting aspect of a new firm but do not want to run a giant corporation; the agreement allows the entrepreneur to have funds for a future startup.
Initial Public Offerings (IPO)
An initial public offering (IPO) is when a private firm opens its doors to the investing public and allows them to purchase shares in the company. While this is a terrific approach to acquire funds quickly, there are some significant drawbacks. While ongoing legal, accounting, and marketing expenditures rise, management now has to worry about ensuring shareholder satisfaction and sustaining stock price.
This is where you sell your business to a partner or a venture capitalist. This method is usually employed when dealing with someone you know or who has already invested in the company. This type of transaction may not be as profitable as others because you are selling to someone you know. Therefore, the asking price may be lower.
No-exit is a viable exit plan for some situations. For example, if your objective is to be a lifestyle company or a family business that will grow organically and never go public. However, it will be highly unlikely that any investor would support a company with a no exit strategy.
Why Adding Value to Your Startup is Important: Limiting Dilution
A startup should aim to increase their firm’s valuation so that they don’t lose too much control of their company when seeking funding from investors. If your company’s worth rises, you’ll be more likely to get the funding you need. Additionally, you’ll be able to negotiate a smaller share issuance because the shares are now more valuable than before.
Don’t worry if you cannot get all of these things going for your startup at the same time! Every business is unique, so some of these suggestions may be appropriate for you while others may not. Another thing to keep in mind is that you don’t want to set standards and goals that you know you won’t be able to meet just to impress possible investors. This will only harm your firm in the long run, as well as your relationship with your investor. Don’t project as if your firm will be a phenomenon in six months if it isn’t. Investors recognise that great companies require time and effort to get to where they want to be.
Amit has 18 years of experience in the industry and an MBA. He supports entrepreneurs with every aspect of their business including concept and product development, investor presentations, and fundraising. Amit & 7startup assist startups in the pre due-diligence process and help connect them to our vast network of investors. Reach out to us today and see if we’re a fit!