Bojan Radojicic’s Post

A useful summary of valuation methods #businessplan #financialplan #valuation

Due to differences between startups and mature businesses in areas like: - Lack of historical data of the business performance - Lots of startups do not have real revenue and cash generating operation - Growth approach, startups usually grow rapidly at their initial years VS mature business growing with inflation or slightly above it - CapEx source, usually comes from investors (equity), while it comes from financing or operational generated cash - Startups do not distribute dividends or have FCFF, due to lack of revenue or having large CapEx expenses Thus, we need to use special types of valuation that puts lots of weight on management, risk, and potential in order to value the startup’s business

🚀 Startup founders: fueled by passion, innovation, and big dreams. But amidst all the creativity and enthusiasm, there's a critical aspect that often takes center stage: Startup Valuation! 💼 Understanding your startup's value is essential for fundraising, investment decisions, and strategic planning. Check out this insightful post for more details. P.S. Want to dive deeper into startup valuation? The full tutorial with excel models and real examples is a must-see.

How to value your pre-product startup. In 18 easy steps. For scenario 1: 1/ Estimate the investor’s exit year. Let’s say year 5. 2/ Estimate your revenue/year in year 5. Let’s say €20m. 3/ Estimate your enterprise value/revenue in year 5. Let’s say 2.5x. 4/ Calculate your enterprise value in year 5: €20m * 2.5 = €50m. 5/ Estimate your net cash in year 5. Let’s say €0m. 6/ Calculate your equity value in year 5: €50m - €0m = €50m. 7/ Estimate the investor’s dilution till year 5. Let’s say 20%. 8/ Calculate the investor’s payoff in year 5: €50m * (1 - 20%) = €40m. 9/ Determine the investor’s target internal rate of return. Let’s say 10%. 10/ Calculate your present value: €40m / (1 + 10%) ^ 5 = €25m. 11/ Estimate the probability of this scenario happening. Let’s say 20%. 12/ Calculate your post-money valuation: €25m * 20% = €5m.   For scenario 2: 13/ Estimate your present value. Let’s say €0m. 14/ Calculate the probability of this scenario happening: 1 - 20% = 80%. 15/ Calculate your post-money valuation: €0m * 80% = €0m.   Total: 16/ Calculate your post-money valuation: €5m + €0m = €5m. 17/ Determine your raise. Let’s say €1m. 18/ Calculate your pre-money valuation: €5m - €1m = €4m.

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“Value” is something abstract. Then how can you quantify it? A startup’s valuation is an estimate of its overall value. However, there is no one-size-fits-all method for calculating a startup’s value. Here are 3 commonly used methods👇   1️⃣ Trading Comparables This method uses a publicly traded company as a benchmark. In simple terms, this is a relative valuation method, which may look like– company X is earning ₹100 and has a ₹300 valuation, therefore company Y which earns ₹10 should be valued at ₹30. This is most suitable for late-stage and mature startups, whose financial metrics are more likely to be aligned with those of publicly traded companies. 2️⃣ Discounted Cash Flow (DCF) In this method, analysts first estimate the future cash flows of a company and then, discount them back to their present value at an appropriate discount rate. Basically, this uses the principle that an amount of money received in the future is worth less than it is today. DCF is commonly used for early and growth-stage startups, which have limited financial history. 3️⃣ The VC Method Commonly used by Venture Capitalists, this method estimates valuation based on the expected rate of return. Factors like the target market, industry growth rates, market share potential and competitive advantage are used to determine a minimum rate of return for the investment. Then, from this minimum rate of return, a discount rate is subtracted, similar to the DCF method, accounting for the time value of money. Obviously, the VC method comes into play for early and growth-stage startups. Found this intriguing? There’s a lot more to how startup valuations are determined. Read on at The Conquest Communiqué (link in the comments🔗)

Quick Value Check If you're looking to invest in startups, you understand the challenge of pinpointing accurate valuations Here are some tips that I learned to get it right: - Examine the startup's financials and market position thoroughly. - Use smart tools like advanced financial models for a detailed analysis. - Benchmark & Compare wisely against similar companies in the industry. - Look at growth potential and assess future growth prospects. - Evaluate the management team - Understand the market - Check customer traction and review customer acquisition and retention rates. - Assess financial health - Look at profitability, cash flow, and financial stability. - Consult with experienced valuation experts - Regularly update valuations to match current market conditions.  Getting valuations right is crucial for making smart investments. It's more than just crunching numbers; it's about understanding the full story behind a startup. Personally, I've found that the art of valuation lies in the details and in continuously learning and adapting. It's a blend of science and intuition, requiring both technical skills and a deep understanding of the market and the people behind the business. This has helped me transform how I approach valuations, turning a challenging task into a competitive edge. It's all about making informed decisions that lead to impactful and successful investments. Isn’t it? What’s your go-to strategy for ensuring accurate valuations?

💡 Life Stages of a Startup I'm studying Big Tech analysis, and I've created this summary of the lesson showing an idea of the stages of each phase of a startup. Bringing it back to my personal work in Business Analysis, I reflected on the importance of not just getting caught up in analysing the company's internal numbers, but also taking into account the stages of the company, the market and the economy in general. And how other external factors might be affecting the business. Explanation of a few terms: > TAM refers to the total size of the market that a startup could potentially reach with its product or service. > EV/EBITDA is a financial metric used to assess a company's valuation. > Free Cash Flow (FCF) is the cash remaining after a company pays its operating expenses and capital expenditures. > Payout Ratio is the percentage of a company's net income that is paid out to shareholders as dividends. > Price to Book Ratio (P/B) is a valuation metric that compares a company's market price to its book value. > ROIC is a profitability metric that measures the amount of return on investment a company generates from its capital. #startup #startups #startupbusiness #business #businessintelligence #analytics

7 Excel models to demystify a valuation of any startup. No guesswork and bias. 𝗦𝘁𝗮𝗿𝘁𝘂𝗽 𝗳𝗼𝘂𝗻𝗱𝗲𝗿𝘀: fueled by passion, innovation, and big dreams. But amidst all the creativity and enthusiasm, there's a critical aspect that often takes center stage: Startup Valuation! 💼 Understanding the value of a startup is more than just a number. It's a strategic compass that guides your fundraising efforts, informs investment decisions, and shapes your company's trajectory. Here's why startup valuation is a crucial piece of the puzzle: 1️⃣ Fundraising and Investment Decisions 2️⃣ Equity Allocation and Employee Incentives 3️⃣ Strategic Growth Planning 4️⃣ Acquisitions and Partnerships Why do you need these 7 models? 🔹 𝗧𝗶𝗺𝗲-𝗦𝗮𝘃𝗶𝗻𝗴 𝗮𝗻𝗱 𝗨𝘀𝗲𝗿-𝗙𝗿𝗶𝗲𝗻𝗱𝗹𝘆 Valuation calculators streamline the valuation process, saving you valuable time and effort. 🔹 𝗗𝗮𝘁𝗮-𝗗𝗿𝗶𝘃𝗲𝗻 𝗗𝗲𝗰𝗶𝘀𝗶𝗼𝗻 𝗠𝗮𝗸𝗶𝗻𝗴: These calculators are built on robust algorithms, taking into account critical financial data. This helps you to avoid guesswork and bias. 🔹 𝗘𝗱𝘂𝗰𝗮𝘁𝗶𝗼𝗻𝗮𝗹 𝗧𝗼𝗼𝗹: By understanding the factors that influence your startup's value, you'll gain a deeper comprehension of your business's strengths and areas for improvement. 🔹 𝗖𝗼𝗻𝗳𝗶𝗱𝗲𝗻𝗰𝗲 𝗶𝗻 𝗡𝗲𝗴𝗼𝘁𝗶𝗮𝘁𝗶𝗼𝗻𝘀: Armed with a well-informed valuation estimate, you can confidently negotiate with investors or potential partners, knowing that your offer is grounded in data and market realities. 𝗪𝗛𝗔𝗧 𝗜𝗦 𝗜N𝗖𝗟𝗨𝗗𝗘𝗗 𝗜𝗡 𝗧𝗛𝗜𝗦 𝗘𝗫𝗖𝗘𝗟 𝗠𝗢𝗗𝗘𝗟: • 7 methods: explanation of when the method is appropriate to use and valuation calculation under given assumptions    • Discounted cash flow method    • Valuation by multiple (EBITDA or Revenue/ARR)    • Comparable companies method    • Replacement cost method    • Net book value method • Berkus method • Venture capital method    • Summary of all methods results 𝗗𝗢𝗪𝗡𝗟𝗢𝗔𝗗 𝗟𝗜𝗡𝗞:  https://lnkd.in/dNHgJJ7w The model is given with minimal cost for a limited period of time. OR Use  Corporate Finance Modeling Package and start creating your financial health today:  https://lnkd.in/d2QhAcJg #Entrepreneurship #TechStartups #StartupLife #startup

The Importance of Financial Forecasting for Startups 🚀 The Startup Journey: Navigating Uncharted Waters Launching a startup is like setting sail into uncharted waters. The excitement is palpable, but the uncertainty can be overwhelming. How do you ensure your business stays on course? 🔮 1. Predicting the Future with Financial Forecasting Imagine having a map that guides you through the highs and lows of your startup journey. Financial forecasting provides this map, helping you anticipate cash flow, manage resources, and plan for growth. 💼 2. Making Informed Decisions With a solid financial forecast, you can make informed decisions about hiring, investments, and expansion. It’s not just about surviving—it's about thriving in a competitive market. 🛡️ 3. Attracting Investors with Confidence Investors want to see that you’re not just guessing your way forward. A well-crafted financial forecast shows that you’ve thought through your business’s future, increasing their confidence in your startup. How has financial forecasting impacted your startup’s growth? Share your insights below!