On Management

more about Valuation

We recently met a few advisors, investors & entrepreneurs. We read quite a few blogs and enjoy the way they give round answers to easiest questions. And we do worship the exceptions.

I would like to make a few additions to my earlier post on valuation. Remember that ‘valuation’ is the amount of money your company is valued at, at the time of a deal. That is, if you believe it is worth $100 million and your investors agree to invest at the same rate [say, $10 million in return for 10% stake], your company is being valued at $100 million. If your investors disagree and no one is ready to buy the deal, you should re-think the amount you’ve decided on.

I’ve highlighted the various factors you should consider while reaching the specific amount in the earlier post. Now for the additions, I’ll prefer a bullet list again.

  • Do not consider valuing your company unless and until you are looking for an outside funding option. There is no point doing the calculations till the situation arises where you’re going to part with the ownership.
  • Do not judge your company according to the valuation it receives. Say, your investors do not agree to the $100 million mark but you end up with a $5 million value in your kitty, that simply does not mean your company is a bad idea. But it is a signal for you to consider better ways to stress on your USPs & strategies. You ended up with a lesser amount either because you couldn’t sell them your idea or you’re being a knight in fairy-land.
  • Be realistic. Be realistic. Be sensible. Kiss your ego goodbye. Its presence results in supposed devastation.
  • Understand the game of ‘Supply & Demand’. The value of your company must be agreed upon by all those involved in the deal. If they buy it, well and good. If they don’t, it is of no use. No one will invest in a probable $100 million company if they don’t want to or dont understand its value. And they might invest in just another firm of $1 million purely because they want to, they understand and believe in it.
  • Do not highly prioritize it. It is always good to be best in running your business and knowing the cash flow. Build a network of advisors and mentors. Always helps.


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