Business valuation is an art, see data more character

Sese (compile:)

cloud network hunting note: startups stand if you want to succeed in the market, we must first determine good companies in various stages of the financing scale and valuation. So, in the process, startup, how should do? Today, this article will take you to uncover the mysteries of the two topics.

“I felt I had to start the next Facebook, even with a little thought for financing. But here come the question, how can I know how much I need financing? And I strive for what kind of valuation the?”

financing scale is suitable

in the early stage, when not generate revenue, financing scale is actually not difficult to calculate. Only need to calculate the costs, and most of the spending this time to pay, then to estimate how long it will take to survive at an early stage. So, to build the first generation product model and how long will it take? 3-6 months? In terms of three people, have to spend 1200 euro per person per month? So, in this stage of angel financing in buffer, I need to raise a total of 1-20000 euros. The so-called seed funding is a similar logic. Our strategy is given at this stage on 12-18 months of operating rate, so it can estimate the cost of the next 12 to 18 months. The very strong startups will reveal they are worth much earlier on appeal, and within a year they can successfully get the first round of financing, the reason is the seed financing still have plenty of cash in the bank. The amount of risk financing will become very difficult, because you have to start planning profits, also will greatly enhance cost base. However, the logic of the still plus ca change.

based on the understanding to the characteristics of the central and eastern Europe, I am some assessment of the average deal size to do the following. To explain is that they are not included in the hardware startups. I these data is not 100% accurate, because there are plenty of exceptions, but these data will have some help for those entrepreneurs, at least they will roughly understand that at different stages of start-up financing cycle, what they can expect.

angel financing, hatching stages: 1-100000 euro

seed financing: 5-500000 euro

A round of funding: 40-3 million euro

B: round and after & gt; Euro 2.5 million

this quite a wide range of financing, especially in the next phase, can be attributed to many factors, including desire to aggressive expansion and development, sales and customer acquisition form (direct sales vs cooperation vs marketing costs… ). The key of the key is to find and the methods of planning and cost can be determined in advance. At the same time, also can’t forget to add appropriate buffer in case of one thousand. Anyway, money is king, once the money the room, you have to pack up to go home.

about buffer, I want to say is that its setting is very subtle. If set too low, it is like a knife in your neck, had been scared. But, if you are artificially inflated assumes that the cost of making them look a bit unrealistic, situation is not good where to go, once the investor, your reputation will be instantly suffered a heavy blow. Say so, please make sure you and investors clearly discussed are you looking forward to make clear the true costs of and you need to add a buffer. It can’t have what hide!

valuations to accurate

this question on the valuation is some difficult to answer. There is some data: seeds and risk financing account for 15-35% stake, and angel financing accounts for a little less, about 5-25%, but it will have more changes. Then, the specific number can be attributed to the actual negotiations and various factors related to the company, such as its potential (market size and 3-5 years of earnings potential), the advantage of the team or the appeal.

no matter what circumstance, the angel financing and the first round of financing stage, the founder are never will let out most shares of the company. If investors require a majority stake in this phase, they and tried to steal the company’s predators. After all, is the nucleus of startup founder, if investors power usurp throne, so where is the founder and passion to help the development of the company? The same logic applies to the angels, they hold more than 35% of the company, as a result, to later from institutional investors, money in hand, will get more difficult? Sad is that many investors don’t realize the startup early in life, if they take too much equity will greatly reduce the company’s future financing ability. Most of the time, this will make the startup prematurely to the end of the road. Well, if that’s the case also known. I see a lot of super promising products have a start-up, but large investors can’t give them financial support, it is because the previous angels have too many shares of the company, but they didn’t add any value to the company.

startup valuations at the same time also need to reflect the potential of it. For most risk financiers, power is only one: to make money! Earn money! More than money! But, how much money is “more than”? Most investors are very like to see the first round of financing at least 10 times that of the potential returns. To compensate for the additional risk, seed financing is more of course. So, please make sure that the potential of your company won’t let you value is ridiculous. I’m not sure if this is only in central and eastern Europe phenomenon, but I can sure, if given the company gives financial projections, do have too many business plans of valuation is not to have any effect. Can, for example: a startup wants to gain 2 million euros in financing, in exchange, they will give up 20% of the shares. But at the same time, the plan is to earn four years to 2 million euros. So, want to ten times the return to the foundation within the given time, the company should become very difficult situation, maybe in the end they have to “sell” yourself out for 100 million euros. However, only a company of 2 million euro gain really can have the value of 100 million yuan? Is too good to be true?

if really need such problems as the financing scale and give the investor shares can accomplish know fairly well, the company’s valuation calculation also becomes very simple, just need to scale according to the percentage of equity financing are allocated to the investors. For example, if you need to raise 1 million euros, and intends to give a 25% stake in financing business, so, after the financing of enterprise valuation should be 4 million euros. Why after financing? The reason is very simple, because it includes the refinancing merchants money, that is to say, after calculating finance to make the financing of enterprise valuation of money is inside. “After the financing enterprise valuation=financing enterprise valuation + raised” before, so we have to example, the financing enterprise valuation before (=after the financing of enterprise valuation (4 million euros) – raised (1 million euros)) of 3 million euros. Before refinancing merchants like reference data to compare different startup valuations, rather than add the amount of data.

when you further financing business cooperation with those who you want to talk to, trying to find their previous business valuation, and will be your startup compared with their finance portfolio companies. AngelList can provide some valuable data, sometimes you also can reference CrunchBase ranges. You can solicit financing will be the expected financing opportunities were compared and their financing combination.

partners rely on spectrum

in my opinion, is more important than accurate valuation is to find the most ideal partner. Don’t compete with those who want to be the best valuation of investment cooperation! In fact, those who because of investment valuation and just wanted to cooperate with you people are implicitly suggests that in addition to money what they give. If you cooperate with such investors, and oneself can only have 5-10% more than their share, then you may just have some ending. But if you choose a good partner, he will take you on the path of a light, and you will harvest will have much much more! Sincerely hope that before the release of the content can help you choose a reliable financing business.

I think, I’ve talked about valuation and financing scale enough. The information may appear in the content more abstract things. A part of the reason is when comes down to the valuation, it is more like an art than a science, is a kind of the art of negotiation, so to speak.

Source: Medium

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