The performance of a business – whether a startup or a corporation – is largely dependent on its ability to efficiently carry out the different parts of the business cycle. A business performs efficiently only when there is smooth transition from one stage to another. For startups, it is vital for the entrepreneurs to understand each of the components, and how they all fit together in the bigger picture for the company.
Let’s take a look at the different components… Read More
Congratulations – you have won a cash prize! You have two payment options: A – receive the cash prize now OR B – receive it in three years. Which option should you choose? A quick evaluation of the ‘Time Value of Money’ (TVM) will give you the answer.
What is Time Value?
If you’re like most people, you would choose to receive the cash prize now. After all, why would any rational person defer payment into the future when he/she can have the same amount of money now? This is at the most basic level of the TVM concept, and it demonstrates that, all things being equal, it is better to have money now than in the future.
So, Which Cash Prize Should You Choose?
In part I, we looked at two factors that VCs analyze while considering investment. In this section, let’s assess the remaining three and some practical ways in which entrepreneurs could impress VCs.
Innovation – Novelty and uniqueness matter. Regardless of a tech or non-tech product, a core differentiator is vital. Its premise has to be straight-forward and intuitive. If the new value tags along a heavy dose of education to convert customers, then it’ll probably end up as a bad deal. VCs would also check the innovation’s elasticity – could it be pivoted for quick fixes and future iterations or no? Universally, simplicity sells, complexity hinders. Additionally, VCs are sensitive to the business model and intellectual property (IP) considerations. Is the technology legally protected from being copied by competitors? If yes, chances are you will get VCs approval due to attaining technology distinction. Further considerations revolve around how the innovation will penetrate the market? Will this make a profit? A deeper look reveals the cost structure, and how much margin can be realized from the innovation. Careful assessment of all these components will shed light on the viability of investment.
Consider Mikail, a college student. Right now he’s in the middle of completing a new tech product – a web platform that will connect worldwide users with a shared passion in arts and literature. Thankfully, the prototype has garnered positive feedback, feeding him the extra zeal to dedicate more efforts on the project. However, regrettably, being a college student, Read More
When an entrepreneur enters the financial world with an innovative idea, one of the first steps is to decide how to raise capital for the business. To do this, they can use equity, debt, or a combination of both. Depending on the type of startup, certain methods of financing will be more appropriate than others. There are two basic types of funding available to startups – debt financing and equity financing.
So…
What is your business worth? Unofrtunately, there is no simple answer. Different people have different opinions on what defines value, making the question itself a tricky one. After all, how much your business is worth today could be quite different than how much you can actually sell it for at a later date. That’s why regularly reviewing the value of your business is so important.
As a startup founder, you will invariably face a time when you need to think about the valuation of your company. Entrepreneurs need to put a value on their startups in order to raise money, and investors need to put a value on their investments to generate liquidity. Whether you’re pre-revenue, post-revenue, in fundraising mode, or simply granting your emplyees stock options, you’ll need to have a valuation to operate from. When trying to determine this, it’s worth utilizing some best practices to justify your number and gain as much leverage as possible in these situations.
On that note, let’s take a look at three basic company valuation methods…