How to Value your company with No-Earnings?

 

Can you even value your company without actually making any money? 

It’s difficult to value a firm that has yet to generate revenue. Because the firm has no revenue, standard methods of valuing like DCF, Equity Transaction Method, Net Asset Method, etc. will fail. Even with the most successful pre-money valuation technique, the most you can expect for is still only an estimate after assessing everything. Future predictions, financial statements, and quantitative analysis are typically utilized when appraising a firm, however they cannot be applied for a company with no revenue. 

What is Startup Valuation and why is it important?

Startup Valuation is when you measure the net worth of the company in monetary terms. The valuation of pre-revenue startups is done like the seed funding round and investors invest funds in the startup in exchange for a part of the company (equity). By valuing the company, the investor will determine the percentage of equity they will receive for the funds invested. A business valuation is never simple. Pre-revenue business valuation may be a difficult process that involves both experience and subjectivity. Because it is impossible to determine the exact worth of a pre-revenue firm in its early phases, you must have the necessary expertise.

Factors to consider when your startup is no-revenue or Pre-Revenue:

When valuing a startup with no earnings, some elements must be considered because they have a direct impact on the valuation:

• Founding Team: When considering whether or not to invest in a pre-revenue firm, investors look at the founding team or management team. They do so because they want to support a management team that can help the firm succeed. 
• Industry and Market Demand: It will have a big influence on your startup if you operate in a sector where the number of business owners is much larger than the number of investors. The demand drive might lead to a greater valuation for your business if your firm has a unique idea and is in a flourishing market with a lot of investors.
• MVP: Having a prototype, regardless of the pre-money formula you use, is a game-changer. Having a functional model available for investors to examine can help to develop the product and bring dreams and concepts to life.

The primary motivation for investors to invest in startups is to make money. They will invest if they believe the firm has promise. Both the owner and the investor assess a pre-revenue firm. Investors assess a firm to ensure that they get a fair picture of it and, if they decide to invest, that they get a decent bargain. Owners review their businesses to identify possibilities, plan for future growth, and ensure that they are not undervaluing their businesses via guesswork.

There are several reasons why you should get your firm valued, including the following:

• The value will play an important role in the negotiation process.
• Encourages the credibility and appeal of the company.
• The valuation can determine if your company is capable of acquisitions which affects expansion and profitability.

All this will have an impact on the business directly, paving the way to future profits and growth. In the end, a startup will be worth whatever investors are willing to invest in it. As a business owner, you may not agree with every valuation your startup gets. Ultimately, you must remember the variables at play, and understand that no valuation, high or low, is ever permanent – or even correct.