Deal Factors Influencing the Valuation of an Early Age Startup!
While evaluating a startup, investors look for multiple things rather than just valuation figures, arrived through traditional approaches. These factors are described below:
Pre Money Valuation and Investment Amount
An investor looks at how much pre-money valuation the founder has estimated for its business and whether the founder can justify that number. Founder generally wants their pre-money valuation to be high so that they have to dilute fewer equity points to investors for the required amount. Whereas, investors look for lower pre-money valuation so that they can have a larger equity stake in the startup.
Term Sheet Deal Points
An investor prefers to have more pre-funding rounds so to protect their interest from the upcoming investors. Hence, he/she demands some preferred treatment such as liquidity preference and voting rights in boards meeting so as to have control in key management decisions. All this is done to reduce the risk which investor is taking by investing early in a startup.
Amount Already Invested
The investor also looks for the amount already invested in the startup. Raising funds from a well-renowned venture increases the chances of the particular startup raising more money in the future.
Stage of the Startup and Need for Additional Investment
Investors are unique in their preference as to in which stage do they want to invest and in which stage. They might look for the need for the additional investment required to make the business model self-sustainable and how likely it is the startup can raise the additional funding needed in the future.