Términos

How do you determine how to evaluate an early stage startup?

When exploring the fascinating world of startups, one of the most intriguing challenges is determining how to evaluate an early-stage company. Evaluations can seem like a mystery, a sort of "golden snitch" that everyone wants to get to but few know how. During these early stages, historical information is scarce, and traditional metrics may not be applicable, but there are several approaches entrepreneurs can consider.

What factors influence the evaluation of a startup?

To determine the value of a startup, it is critical to understand two key elements:

1. Amount planned to raise: How much money the company needs to evolve.
2. Percentage of ownership to give up: The proportion of the company that the founders are willing to give up in exchange for the investment.

These factors are intrinsically linked, starting with an essential tool: the "cap table". This document allows different scenarios to be simulated and the consequences of different financing decisions to be evaluated. In the initial rounds, such as the seed series, a dilution of 15% to 20% is common. The goal would be to reach Series A with 60% to 70% ownership in the hands of the founders.

An efficient strategy is to calculate value based on business needs. For example, if you deduce that you need to raise $100,000 and are willing to give up 10% of the company, you would imply that the value of the company is $1 million.

What is the role of the market in the valuation?

The market is a crucial component when evaluating a startup. It is about making sure that there is interest in the product or service offered and that the price is competitive. This interaction with the market allows you to iterate on the evaluations until you find a suitable one in relation to supply and demand.

The financing round may need to be adjusted, increasing or decreasing the size of the investment depending on market feedback. The evaluation should not be a rigid value, but a flexible estimate that can be adapted according to circumstances.

How to use comparisons with other companies?

Seeking comparisons with other companies in the sector is an effective strategy. Although it may be difficult to compare with public companies due to stage differences, they can provide a useful benchmark. Similarities in business model and industry can provide a relevant range of assessment.

In addition, talking to other entrepreneurs who have already gone through similar processes can provide valuable insights. Shared experiences within the entrepreneurial community enrich knowledge, as useful figures and strategies can often be derived from these dialogues.

Practical strategies for successful evaluation

At the end of the day, the goal is to establish a realistic valuation that satisfies both investors and founders. Some best practices include:

• Simulate with cap tables: Experiment with different scenarios to anticipate and manage the effects of dilution.
• Iterate and adjust: Be willing to modify the valuation in response to the market.
• Seek outside advice: Talk to professionals and other entrepreneurs to get different perspectives.
• Maintain flexibility: Be open to renegotiating terms as new opportunities or challenges arise.

These strategies not only help determine an accurate value, but also strengthen decision-making skills in the complex realm of entrepreneurship. Continuing to learn, being open to adaptations and always looking for growth are key to the success of any startup in its early stages.