How entrepreneurs value their company

George Deeb, a partner at the recent Red Rocket Venture venture company in Chicago, published an article advising entrepreneurs on how to value their start-ups. The article reads as follows: I am often asked by entrepreneurs about the question of how to give their company a proper valuation. Usually, the people who ask these questions are already entering the relevant financing or acquisition stage, facing some investors ' quotations. My answer is always simple, like all business, depending on how much someone else is willing to pay for you. But it's still a little different for the entrepreneur, because the logic of the quote from one industry to another is much the same. Here are some tips to help you get a reasonable price for your new venture: 1. Supply and demand first of all, don't forget the fundamentals of economics: the supply and demand relationship. The more rare a product, the more demand will be strong, the so-called shortage, such as you have a good patented technology, then there will be a lot of investors chasing. It's best to attract multiple investors to pursue your company and not let investors feel that he is the only one who is interested in you, which will be very detrimental to your valuation. So before you start financing, be sure to do your job, make your business work, and show innovation and value so you can maximize your valuations. In an overly competitive industry, it is hard to get good quotes, and without innovative startups, the estimates will be lowered. 2. Focus on your industry in addition, as mentioned above, each industry has its own unique valuation logic and methods. An innovative biotech company has a much higher valuation than a family restaurant or a common web plug-in development company. A restaurant, for example, should be valued at about 3 to 4 times times its various assets, while an internet company, if traffic is impressive, should be valued at around 5 to 10 times times its annual revenue. So before you talk to investors, take some time to study, the recent period of your industry financing and mergers and acquisitions news, it is necessary. If you can't find the relevant financing statistics, find a counselor to help you. 3. Your development In addition, your own development is an important factor in determining valuations. My personal habit is to divide the new company into 4 stages of development, simply describing it as a different grade in the student era. Just set up: At this time is mostly a simple product, may still be in the test. Then either take the risk from your own pockets and, if you want to raise money, target 50,000 to 500,000 dollars. Two years later: Test completed, with product line, and even the initial user. At this point, your goal should be the angel Investor's Seed fund, the amount is roughly 500,000 to 1 million dollars. Three years from now: when your business expands and your revenue grows to around 1 million dollars, consider a round of investment that should be financed at 1 million to 5 million dollarsBetween。 Four years later: this time the company should have millions of of the revenue, and ready to scale expansion. Then you need a B-round financing between 5 million and 50 million dollars. In short, different stages of entrepreneurship, valuation criteria are not the same. 4. Valuation skills In addition, entrepreneurs can understand, the estimated skills of an investor in the face of a new venture include the following: turnover, cash flow, net income, etc. in your industry, recently completed financing transactions; In your industry, the business turnover, cash flow, Net income, etc. and a discounted analysis of your future cash flow. Generally speaking, depending on your industry and development, the above factors will be based on the previous factor, about 3 to 10 times times. Of course, of all the factors, the most important is the future expected income, such as your annual income can increase by 25%, then you can use 25 times times the annual profit as a valuation. If your company is not profitable, consider it from a long-term growth. If you use the turnover as the base, then the multiples generally between 0.5 and 1, the rapid growth of enterprises can be appropriately enlarged to about 1 to 3, for those who burst the new internet companies can reach 10 times times. But if your business does not have any income at the moment, it will be difficult to value your business except in some special circumstances. In addition, private companies have a 30% lower valuation than listed companies. 5. Relevant rules of thumb investors look at a large number of projects every day, the market pulse to grasp the very accurate, so entrepreneurs have to choose a number of alternative financing options. Then carefully compare their valuations and try to negotiate with each investor. In general, according to the relevant experience, the entrepreneur is prepared to transfer 25% to 35% of the equity as a financing exchange. For example, a seed-stage company plans to raise $500,000 trillion, so their reasonable valuations should be around 2 million. 6. Try to make your investors 10 times times more profitable to compete with other new ventures, the key is to bring huge benefits to your investors. Now investors are looking for 10 times times the return on investment. For example, if your valuation is 5 million dollars, and investors account for 25% of the value of 1.25 million, then you have to come up with a plan that you can push the investor's expected earnings to 12.5 million within 5 years. All in all, there are many ways to value a start-up, and I hope the above suggestions will work. (via TNW/fast carp)