Start-up valuations are booming and there’s a good reason why?

What is the valuation of your company ?

“Have you done any valuation for your company ?”

While watching the famous “Shark Tank” TV series, all of must have heard these statements from the business giants to the people who are there presenting their business ventures and start-ups.

The big question arises here is what is this valuation for start-ups and how does this valuation work.
And more than that, why is everyone in the market talking about this start-up valuation.

Let’s begin from the start here. 

What is start-up Valuation?

Valuation is basically the process to calculate and evaluate the value of the start-up company. Start-up valuation is important for businesses because they are applied to companies who are in pre-revenue stage and it helps owners to strategise the business tactics to have bigger return. It also helps the investors to decide whether they should invest in the particular business or not.

Why it is so important to have valuation for any start-up?

Most of the start-ups founded through an idea or a vision but when it comes to establishment of that particular start-up you require much more than just vision. The funding and investment require to establish the start-up, valuation of that business is very important. It gives idea and clarity to A) Investors B) Owners about the process and planning of growth of the business and also the profit they can have once they start working on their planning. Valuation helps the investors to understand and calculate their ROI as well. The valuation helps investors and owners have the clear idea about how to grow and what needs to be done to grow.

Why we are talking about the Start-up valuation and not just us, the market is booming with start-up valuation and why not! Not just one but there is multiple reason why this valuation is booming.

Let’s start with the numbers.

If you see the analysis, venture capital reached to $84B of investment in just United States in 2017. We are in 2022, so it risen to new heights. So, increase in venture capital results in increasing valuation as well. Valuation is on rise level but why?

Funding Factors, sectors and classifications

Over the past few years, it has been classification in the funding rounds from the start-ups companies and every company is approaching their funding rounds differently. Based on the valuation of their company, they approach different way out for funding.

Usually the normal company financing funding has the seed funding -> Round 1 -> Round 2 and so on route for raise finance and grow rapidly. But, with valuation coming in the picture, every company has their own route to raise the money. Where company A can have the straight 4 rounds and call it a seed rounds where not only Angel Investors invest but VC investment comes in the picture as well and then have direct Round 2 in the longer period. On the other hand, company B can have the large Family – Friends round to raise the money on initial stage and then directly go to Round 1 to have bigger investment based on the valuation.

This valuation helped the companies to have the better idea and vision about their ROI and that is why it gave liberty to have as many rounds of funding as companies need and require and grow rapidly as per the valuation reports.

Value of the companies

The big reason why valuation is booming and risen is that with valuation of the companies the risk of failure is low and that is why there are companies who are actually worth more.

Why suddenly companies are more valuable and the possible explanation we get here is the investment costs has been reduced largely because of the technological infrastructure such as AWS and GitHub has risen and made it easy to organize which helps companies to cut the costing upfront bug time.

Another possible explanation to why companies are being more valuable now is the understanding of financing rounds and the time they take between two rounds. In the past few years, the companies have been spending more time in between two rounds of financing and they are taking this longer period to build up their value before raising the next funding and aim for a bigger return. The valuation helps companies to understand their process and progress before going down for another financial funding.

So, the main factor here is the lower risk of failure which gives companies the more value than before and if this continues then we can see a decline rate in business failures in coming years and also it will help start-ups to grow rapidly and also help investors to invest risk-free in start-ups

Multiple Valuations

The importance of valuation is already understood by companies but we have been seeing multiple evaluation done by the companies to have the higher rate of growth in longer period and that is also the reason why valuation is booming.

The founders are usually have the higher first / seed round of funding and then have even higher second round to have the maximum growth and this method does not work if the initial investment does not make it to the profitable business or even break-even business. This becomes even more trouble if the initial investors back off from the next round of funding and this is why companies do detailed evaluation before starting their first seed round.

This is why multiple evaluation helps companies to have effective multiple funding rounds where they have the big jump in between first seed round and next round and the multiple evaluation helps to focus on how much they need to reach new heights of success in the next round of funding. This is why not just start-up valuation but pre-mature & mature company valuation is important and booming.

Takeout and Conclusion

The question here was why Start-up valuation is booming, and the most suitable reason here is all three of them listed and mentioned above. Technology infrastructure helps the start-ups to reduce the costing and helps the investors to invest on a lower scale and have a high return as well. Also, multiple valuation reports and classification funding helps business founders get the idea about the process and planning more efficiently and it lower the risk of the failure.

The main aim here is to have a successful business start-up and valuation makes it easy to take that first step towards the successful campaign ahead.!!

The Bottom Line:

To provide yourself with the highest worth for your pre-revenue firm, you must balance all of the elements that your startup must give. Before approaching individuals who may be interested in investing in your company, you, as the owner, must first learn how to evaluate it. Experimenting with various valuation procedures can enable you to demonstrate to investors that your firm has the potential to expand and is worth their money.

As all of the above pinpoints. We, My Valuation, are also an IBBI-registered firm of valuators that assist start-ups in obtaining accurate business assessments and building a stable foundation for future initiatives.

Contact us now; we can help you with accurate and dedicated startup valuation services. Visit our site to learn more about our valuation services: https://myvaluation.in/