Valuing a startup


#1

Hey all - with so many interesting crowd investments being discussed, we thought it was high time to write something on startup valuations:

Very interested to know what approach you use - and how it’s worked out.


BrewDog launches Equity for Punks V on Crowdcube
#2

Interesting pointers in the article.

Coming from some personal attempts at internet startups (some profitable some not), aswell as being involved in the cryptospace and ICOs 2015 onwards (funny I know) I have a few key pointers I follow.

In no specific order this is my recipe:

  1. Team
  2. Amount of Debt (if applicable)
  3. Accomplishments to date (after seed, if applicable depending on round)
  4. Possible pivot or additional revenues to current business model
  5. VCs involved (I use crunchbase and Google news to catch up on whos who)
  6. Partnerships / Deals (point 5 is also applicable here as most big VCs help in the progress)
  7. Cost of customer acquisition (Tech companies scale faster and at a lower cost, I prefer these)
  8. Similar businesses that have IPOed or been acquired (good ballmark vs valuation and possible upside with a tiny % of the niche market)
  9. Possibly being seeded at further rounds by another bigger company with big cash flow in the same niche as a prevention method for competition.
  10. Perks - what makes you better then X or Y
  11. Is this an original idea or a better twist to something big ?
  12. Would I tell my friends about this startup ?
  13. Timeline and expectations (regulatory, development etc)

(Vladislav Kozub) #3

To add to what was said above, scalability is a massive one. If a company can grow the revenue faster than its variable operational expenses, it is a massive plus - once you get all you business-related subscriptions to corporate level with unlimited users, you cannot expect the cost to rise significantly, right?

Also, speaking of fintech, if the staff-to-customer ratio keeps widening consistently with customer growth, it is also a very positive sign. It would also be nice to see such things being reported in the annual statements. Example:

Year 2018 2019 2020
S2C ratio 1:5000 1:12000 1:28000

Of course, Freetrade is lucky enough to be in a very scalable sector. Unlike, for instance, brewers, who will most likely need more “branches” to boost their top line. After all, the retail broker could simply aggregate all the workforce in a single building and save on rent. All these little things add up and also form the total value of a startup I would have thought.