Valuing A Start-Up Company

How does one value a start-up company?

Some do it from comps (comparable companies) and then discount for the many risks as a start-up. Some look at projected financials or maybe market share. Some calculate the amount of unpaid labor that may be required by founders and try to value the company that way. Some try a combination of all the above, or some other way.

Let’s face it, there is no proven, scientific way to value a start-up company. If you are starting a new company and need seed money, you can come up with all sorts of justifications for a valuation. In the end, however, the value is whatever point that ¬†investors are willing to give you money.

For start-ups, many of the investors are family and friends so it’s usually what the entrepreneur claims the value to be. Otherwise, investors will invest in the person — the entrepreneur. A great business plan can be never be successful if inappropriately executed by a mediocre team. An experienced entrepreneur can polish a mediocre plan into a good one, and actually execute upon it.

So, in the end, the value of a start-up is the experience and capability of the entrepreneur and his/her team.

I’ve been humbled by the interest in my new venture. Fortunately, or unfortunately, the business plan doesn’t require much cash.

My focus in talking with interested investors have been to be completely honest about the potential risks — and there are many for all start-ups. I also have been clear that the valuation is subjective and solely based upon my ¬†experience. Some advisers¬†insinuated that maybe I was not being aggressive enough given the amount of interest. Well, another lesson I’ve learned from previous ventures is that “greed” can surely set you up for failure.

2 comments on “Valuing A Start-Up Company

  1. Sharon Wilson
    June 26, 2009 at 5:34 am #

    Nice post! Thanks for sharing your ideas and experiences on being an entrepreneur!

  2. sports coach
    June 28, 2009 at 12:00 am #

    Great site, I now have you bookmarked to come back again.

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