came across this later
The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
That didn’t exactly help, did it? Many things don’t. Valuation is the amount of money you value your company at. It helps when you are giving away part ownership to someone else, from outside or inside your firm. So, if we value a company at 50 lacs, an investor can claim ownership of 10% by investing 5 lacs. Thats about it.
The value keeps changing, of course. It all depends on your performance. The correct valuation of a business is at which the deal is struck. The process of finding the right value for that right deal is an objective process. And there are certain qualitative factors you need to keep in mind because they affect your business-
- Valuation depends on how sustainable your company is and what gives it an edge against its competitors.
- It depends on the quality of your management team, long-term goals and mindset of the organization as a whole.
- It is important to retain customers and it is essential to make efforts on this front. Valuation is based on revenue growth and that becomes difficult with customers having a short-lifetime.
- Stage of the business is an important decisive factor too. Various stages can be- prototype, growth, pre-IPO & post-IPO.
- Keep in mind the past and current investors for that gives you an upper hand. Having a quality investor and the proof of you giving the return on investment improves your credibility.
- Chart out the exit strategies for your investors and they will like your company more. Remember, an investor only truly makes money by exiting the organization. Give your investor that visibility.
- And spend some time detailing the expansion prospects. Nothing like a company that knows where its headed, and knows what it wants to become.
Valuation is a dynamic exercise, for sure. And fun. :)
[Reference: Entrepreneur India, Infomedia 18 Limited]