We have seen many cases where some startups have a huge discount in their valuation compared to their peers. It begs the question why?
Some factors that we see contribute to this are:
- The founders or CEO do not know their peer’s valuation
- They haven’t fundraised much before and therefore they do not know how to deal with the numbers
- The investors of one startup are short-term investors who just want to jack-up the valuations as quickly as possible so that they can exit fast
- The startup’s sector is not in demand but the others are
- The startup is unable to back up its numbers with adequate data internally or externally
- The startup is unable to show important metrics such as recurring revenues, high switching cost, network externality, etc
- The startup does not have a good team that possesses relevant education and working experience
- The startup hasn’t talked to a lot of investors therefore they only have only a small number of bidders
So what should you do as a founder to make sure that you get the right valuation?
- Talk to multiple investors to gauge how much your valuation is
- Talk to other companies, even if they are not in the similar sector
- Fix any hole that you find in your startup from the paragraph above
There is no magic formula for your valuation so it pays well if you network and ask around.
We can help entrepreneurs with their valuation assessment to avoid a valuation discount as we have navigated many entrepreneurs in their quest for a fair market value for the enterprises.