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How to Value Your Startup
It’s commonly said that business valuation is more art than science. If this is true, then the practice of valuing a startup business is squarely in the domain of the artist.
Nevertheless, 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.
1. You are what the market says you are. If investors are telling you that your startup is worth $1 million, then that’s what it’s worth.
2. But you can also tell the market what you’re worth. Although this might seem to contradict the point made above, it’s possible to tell the market how to value your company.
3. You’re not really worth anything until you’re profitable. If you’re not profitable, your business probably isn’t worth very much.Entrepreneurs need to use creativity in valuing their startup businesses. Traditional approaches to valuation based on book values and P/E ratios are akin to painting by numbers.
If you want your startup to be a masterpiece, you’ll need to use the right side of your brain as much as your left to determine value.
Photo by mm904ut.
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