Business Valuation: Startups

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An overview of the unique circumstances and methods involved in appraising startup companies.

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Business Valuation: Startups

  1. 1. Business Valuation:Startup Companies Presentation by Schwartz Heslin Group, Inc. (SHG)
  2. 2. Startups vs. Mature Companies Valuation specialists typically use historical financial data to extrapolate the future value of a business  But startup companies have short operational histories and little historical financial data
  3. 3. Startup Valuation Startups require a more creative valuation methodology that considers, among other factors:  Quality of management  Value of comparable companies  Industry prospects  Value of company IP  Stage of development  Working capital requirements
  4. 4. Management Team The quality of a startup company’s management team is examined for:  Past performance  Skill level  Experience An experienced and well-educated management team can significantly bolster a startup’s value
  5. 5. External Factors Comparable companies  Valuation experts examine the value of similar companies as benchmarks Industry prospects  Startupsin expanding market spaces are generally valued at higher multiples than those in stagnant or shrinking spaces
  6. 6. Company Intellectual Property A startup’s IP can often be its most valuable form of asset  Valuable IP can be crucial to giving a startup a competitive advantage  Potential buyers look for valuable IP that can be deployed in new areas or can form the basis of a new service or product
  7. 7. Stage of Development (1) A more mature company will be valued at higher multiples than a less mature one A young startup is often considered to have:  A less stable and consistent customer base  A less established or well-known brand  An unproven product or service
  8. 8. Stage of Development (2) Potential buyers will often look for certain development benchmarks as signs of a maturing enterprise  How close is the company to breaking even or becoming profitable?  Is the company generating positive cash flow?
  9. 9. Working Capital Requirements In general, a startup with greater or expanding working capital requirements is not as valuable as one with smaller working capital needs Short-term liquidity needs soak up available funds  ifless liquidity is needed, investment in the startup is less risky and more attractive for the investor
  10. 10. Conclusion Startups are valued at lower multiples than mature companies for a number of reasons  These reasons warrant a more creative approach to business valuation  This also creates greater variance in professional valuations Startup owners should take steps to bolster enterprise value in advance of exit opportunities
  11. 11. Presented by: Schwartz Heslin GroupAddress: Or visit us on: 8 Airport Park Bvld. Latham, NY 12110Phone: 518-586-7733 Web: www.shggroup.com

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