5 Strategies For Balancing Revenue Versus User Growth

Startup Professionals Musings

Some analysts argue that revenue drives growth, while others say user growth drives revenue. Google reached $1B in revenue within five years of incorporation, and now has a market capitalization of over $1 trillion. Long-term stability requires revenue growth and profit.

Business Valuation: Determining The Worth Of A Company

YoungUpstarts

Business valuation is defined as a way to determine the overall economic value of a company , and is a necessary component of a sound business plan and strategy. Any of these situations will demand a valuation to determine current and future projected value. .

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Why Gross Profit Is More Important Than Revenue

Feld Thoughts

This was before the IPO Summer of 2019 when all conventional valuation metrics have entered the land of “suspension of disbelief” which is short-term good and long-term well-we-will-see-…-eventually. We ended up talking about using Gross Profit, instead of Revenue, to do valuation analysis. GP = Net Sales – Cost of Goods Sold GM = ((Net Sales – Cost of Goods Sold ) / Revenue). Entrepreneurship gross margin revenue valuation

Fundraising Now? Remember Morality Impacts Valuation

ReadWriteStart

New talk of capital efficiency is gratifying, but there was another lesson from pre-COVID-19 valuation struggles. Venture capitalists and early-stage investors have told all of us, founders are critical to a startup’s valuation.

5 Reasons Startups Need Revenue As Well As Users

Startup Professionals Musings

Some analysts argue that revenue drives growth, while others say user growth drives revenue. Google reached $1B in revenue within five years of incorporation, and now has a market capitalization of over $400B. Twitter showed no focus on revenue in the first five years, but was able to parlay 500M users into a $22B public company, now growing revenue. Long-term stability requires revenue growth and profit.

10 Rules of Thumb for Startup Investment Valuation

Startup Professionals Musings

Once you have a potential investor excited about your team, your product, and your company, the investor will inevitably ask “What is your company’s valuation?” How much is NewCo worth to investors at this point (pre-money valuation)? Well, if the parties agree to a pre-money valuation of $1M, then the post-money investor ownership is 50% (founders give up half interest, and lose control). This is the most concrete valuation element, usually called the asset approach.

What Startups Need To Know About Business Valuation

YoungUpstarts

With the daily demands of running a business along with the financial pressures and challenges inherent in early-stage companies, a business valuation may not be the first thing an entrepreneur thinks of when he awakes each morning. But it’s an important consideration, especially for companies that plan to offer alternative compensation such as employee stock options, which will usually require a 409A valuation. When does a startup company need a business valuation?

Should Entrepreneurs Grow Revenue Or User Count?

Startup Professionals Musings

Some analysts argue that revenue drives growth, while others say user growth drives revenue. Both have worked.Google reached $1 billion in revenue within five years of incorporation, and now has a market capitalization of over $400 billion. Twitter showed no focus on revenue in the first five years, but was able to parlay 500 million users into a $22 billion public company, now growing revenue. Long-term stability requires revenue growth and profit.

10 Top Revenue Models Drive Viable Businesses Today

Startup Professionals Musings

Every business needs to develop a revenue model even before a product. The alternatives range from giving the product away for free (revenue from ads), to pricing based on costs, to charging what the market will bear (premium pricing). This may seem like Business Fundamentals 101, but the market changes rapidly, so I thought it might be useful to share what I see as the most common revenue models being used by businesses today. Revenue is a percentage of every transaction.

How Investors Think About Valuation of Pre-Revenue Startups

SoCal CTO

Because of this, I've always tried to stay up-to-speed on how early-stage investors look at valuation of companies. Bill Payne is an expert on how early-stage investors should look at valuation. He just post: Establishing the Pre-money Valuation of Pre-revenue Startups. Especially interesting is the Valuation Worksheet towards the end. A lot of my time is spent helping early-stage companies get to proof points so that they can raise capital.

Valuations 101: Scorecard Valuation Methodology

Gust

In 2011, the valuation of pre-revenue, start-up companies is typically in the range of $1.5–$2.5 Scorecard Valuation Methodology. This method compares the target company to typical angel-funded startup ventures and adjusts the average valuation of recently funded companies in the region to establish a pre-money valuation of the target. Pre-money valuation varies with the economy and with the competitive environment for startup ventures within a region.

Ten Components of Startup Valuation For Investors

Startup Professionals Musings

Once you have a potential investor excited about your team, your product, and your company, the investor will inevitably ask “What is your company’s valuation?” How much is NewCo worth to investors at this point (pre-money valuation)? Well, if the parties agree to a pre-money valuation of $1M, then the post-money investor ownership is 50% (founders give up half interest, and lose control). This is the most concrete valuation element, usually called the asset approach.

Don’t get hung up on early stage valuation.

Berkonomics

I can’t tell you how many times I’ve walked away from deals where the entrepreneur insists on a start-up pre-money valuation that is so high, no angel could expect to make a return upon the investment, even with a reasonable sales price for the company down the road. Here’s the “what.”.

Revenue Recognition’s Effect On M&A

YoungUpstarts

There has been a lot of chatter regarding changes in revenue recognition criteria lately, but the effects it will have on the evaluation of companies planning an exit is just beginning to emerge. A change in revenue recognition means a change in the due diligence process, specifically accounting diligence, modeling, quality of earnings and cost of integration. Recognize revenue when performance obligations are met (good(s) or service(s) have been provided).

Valuation Methods 101

Gust

This is the first of a six part series on different methods used by angel investors to arrive at pre-money startup valuations. Detailed descriptions will be published over the next few weeks: The Scorecard Method: This method compares the target company to typical angel-funded startup ventures and adjusts the average valuation of recently funded companies in the region to establish a pre-money valuation of the target. The Cayenne Valuation Calculator.

Reduce five risks: Increase your valuation

Berkonomics

So, it is important for the entrepreneur to identify, address and mitigate each of these in order to increase valuation and decrease the risk of ultimate loss of the business. Why five risks?

Startup Valuations – Again….

ithacaVC

I have written about startup valuations previously. This morning I was reading one of my favorite daily compilations of articles (called Innovation Daily, subscribe here ) and came across another great short article on startup valuations called “ Seed Rounds: How to Pick a Valuation “ Joseph Walla, who I don’t know, wrote it. There’s a reason it’s so difficult to figure out – valuations have little basis in reality for early stage companies.

Valuations 101: The Venture Capital Method

Gust

We recently started a series of posts on establishing the pre-money valuation of pre-revenue startup companies for purposes of investment by seed and startup investors. It is one of the useful methods for establishing the pre-money valuation of pre-revenue startup ventures. The concept is simply…since: Return on Investment (ROI) = Terminal (or Harvest) Value ÷ Post-money Valuation. (in Then: Post-money Valuation = Terminal Value ÷ Anticipated ROI.

Valuations 101: The Cayenne Calculator

Gust

We recently started a series of posts on establishing the pre-money valuation of pre-revenue startup companies for purposes of investment by seed and startup investors. The High Tech Startup Valuation Estimator is an online tool developed by Cayenne Consulting to assist entrepreneurs and investors in estimating the pre-money valuation of startup enterprises. Use the most pessimistic responses to calculate valuation.

After 20 years: Updating the Berkus Method of valuation

Berkonomics

There is a universal truth: fewer than one in a thousand start-ups meet or exceed their projected revenues in the periods planned. So how do you use financial projections as valuation metrics when you know the odds of those being accurate predictors of the future are so very unreliable? I must believe that the candidate company, if successful, could achieve some level of gross revenue at the end of the fifth year in business. Well, it had to happen.

Spectacles and $SNAP’s $20B Valuation

Austin Startup

Revenue needs to grow 20x, and margins must expand dramatically. I won’t dive into cost structure in this blog post, but let’s think through how Snap could grow revenue 20x. Snap’s revenue is a function of two numbers: number of users, and average revenue per user (ARPU). In summary: Snap’s current business doesn’t justify a $20B valuation. How can one justify a $20B valuation for Snap? Global smartphone revenue is about $420B.

10 Rules of Thumb for Startup Investment Valuation

Gust

Once you have a potential investor excited about your team, your product, and your company, the investor will inevitably ask “What is your company’s valuation?” How much is NewCo worth to investors at this point (pre-money valuation)? Well, if the parties agree to a pre-money valuation of $1M, then the post-money investor ownership is 50% (founders give up half interest, and lose control). This is the most concrete valuation element, usually called the asset approach.

Startups With Real Revenue Can Get Venture Capital

Startup Professionals Musings

Your friends and family are really the only answer until you have a significant revenue stream. Use friends, family, and angels, if possible, to get a product, revenue, and customers first before the VC connection. That means the target market must be large (at least $500M), proven and growing, with revenue potential of at least $50M within five years. To make this work, you will need an initial valuation of at least $5M.

Valuations 101: The Risk Factor Summation Method

Gust

The Risk Factor Summation Method the fifth methodology for estimating the pre-money valuation of pre-revenue companies we have described in recent posts. Readers may have noted that both the Scorecard Method and the Dave Berkus Method considered a narrow set of important criteria for investment in arriving at a pre-money valuation. For more information on determining the average valuations in your area, see the Scorecard Method. million pre-money valuation.

How valuations are really determined at the seed stage?

Hippoland

Valuation is a nebulous topic amongst early stage startups, so I thought I’d really spell it out in detail. In short: Valuations for seed stage companies are fairly arbitrary and driven solely by supply and demand. Your startup’s valuation is not based on a proforma of your revenue. This is really key to understand, because so many founders wonder, “Why was that company over there who has 0 revenue able to raise their round at a $10m cap convertible note?

8 things to consider when determining your startup valuation

The Next Web

Setting a valuation for an early-stage startup looking to raise money is tough. Should you rethink your magic number if you still have no revenue? To help, I asked eight founders from YEC the following: What is one thing I should be thinking about as I come up with a valuation… This story continues at The Next Web. There’s no one right answer or formula to rely on, yet plenty of advice — some of which can lead you in the wrong direction.

2012 Valuation Survey of Angel Groups

Gust

This summer I conducted our third annual survey of the pre-money valuation of pre-revenue companies recently funded by angel groups in North America. Access to our 2010 and 2011 surveys can be found at 2011 Valuation Survey of North American Angel Investor Groups. For the first time, we asked for data from specific business sectors, as follows: All pre-revenue deals. Pre-revenue life Science, biotech and medical device deals. Pre-revenue energy and clean tech.

Why recurring revenues increase your company’s value

Berkonomics

The massive shift in revenue models in recent years. Until someone realized that recurring revenues were much more highly valued by the subsequent buyers of similar businesses and investors, and that loyal users would be willing to pay annually. Call it “predictable revenue”.

Should your new VC fund use Revenue-Based Investing?

David Teten

I’ve been a traditional equity VC for 8 years, and I’m now researching Revenue-Based Investing and other new approaches to VC. The question I’m asking myself: should a new VC fund use Revenue-Based Investing, traditional equity VC, or possibly both (likely from two separate pools of capital)? Revenue-Based Investing (“RBI”) is a new form of VC financing, distinct from the preferred equity structure most VCs use. Who are the major Revenue-Based Investing VCs?

Valuations 101: The Dave Berkus Method

Gust

We recently started a series of posts on establishing the pre-money valuation of pre-revenue startup companies for purposes of investment by seed and startup investors. Dave’s valuation model first appeared in a book published by Harvard’s Howard Stevenson in the middle nineties. Add to Pre-money Valuation. Note that the numbers are the maximum for each class (not absolutes) so a valuation can be $800K (or less) as easily as $2.5

How To Evaluate Your Company’s Value

YoungUpstarts

While this “balance sheet” valuation of your company overlooks important value factors such as revenue and earnings potential, it is a good place to start in determining the actual material value of physical property. Look at Revenues.

When Entry Multiples Don’t Matter

Andreessen Horowitz

OH in South Park, San Francisco (or on Zoom from Big Sky, Montana): “OMG, crazy – that firm just paid 100x revenue to invest in [insert hot startup here] – what could they be thinking?” . Uncategorized glossaries & terms to know valuation and valuations

Don’t get hung up on valuation.

Berkonomics

I can’t tell you how many times I’ve walked away from deals where the entrepreneur insists on a start-up premoney valuation that is so high, no angel could expect to make a return upon the investment, even with a reasonable sales price for the company down the road. There is always another attractive deal at the ready, and most have reasonable expectations of valuation. Why fight about valuation, or disappoint the founder at the outset?

Hugh opportunities do NOT command amazing pre-money valuations.

Berkonomics

Dave’s note: Popular Bill Payne returns this week with a thoughtful take on valuations. Yet, at the pre-revenue stage of development, angel investors price both companies at a pre-money valuation of $1.5 It is possible to grow a company to a valuation of $30 million on one or two angel rounds of investment. By Bill Payne.

Worked Up about Unrealistic Venture Capital Valuation

Growthink Blog

So, Mike tells me he wants to raise a first round of venture capital based on a $100 million valuation. Getting a $100 Million valuation is impossible for a startup. In fact, getting above a $10 Million valuation is also virtually impossible unless you have at least some traction (e.g., I mean it took YEARS and millions of members before Facebook commanded a $100 Million valuation. And how, there's no way he would have received a valuation above $5 million.

Find and build recurring revenues.

Berkonomics

Most every business can take advantage of continuing, recurring revenues from its customer base. Sometimes, products are designed to make all of their profit upon the recurring revenues from supplies or support. Even though that reduced short term earnings, lease revenues over time far outweighed any combination of sale and maintenance revenues, and Xerox grew into a major company based upon its innovation and its recurring revenues.

HOW TO HANDLE DATA EFFICIENTLY TO BOOST BUSINESS GROWTH

The Startup Magazine

For example, you can ascertain which products earn you the most revenue, which products generate the most goodwill, the seasonal demands of the products, etc. Identify Costing Loopholes: All businesses function with one most essential aim: minimizing costs and maximizing revenue.

8 Key Business Elements Set Startup Investor Interest

Startup Professionals Musings

Angel investors will perk up if you have a prototype or a few real customers, while venture capitalists will likely choose to wait until you have achieved several million in revenue or customer count. funding investors startups valuation

The Secrets Behind Determining the Value of eCommerce Sites

The Startup Magazine

Whether you’re interested in selling a website you built from scratch, or want to sell your Amazon-based B2C brand, there are many different baseline factors that go into determining an appropriate website valuation number. Valuations: Determining What Your Business Is Worth.

Recurring Revenue is Magic

Seeing Both Sides

As a result, the full revenue for each deal was recognized in that quarter as soon as the software was shipped. This allowed our revenue to skyrocket from $1.8 million in one year, the year we went public at a billion dollar valuation (ok, it was 1996; everyone went public in 1996 with a billion dollar valuation), and then $61 million the following year. But the downside to our business model was that we did not have hardly any recurring revenue. . Valuation.

Why are Revenue-Based VCs investing in so many women & underrepresented founders?

David Teten

A new wave of Revenue-Based Investors are emerging who are using creative investing structures with some of the upside of traditional VC, but some of the downside protection of debt. Revenue-Based Investing (“RBI”) is a new form of VC financing, distinct from the preferred equity structure most VCs use. For more background, see Revenue-Based Investing: A new option for founders who care about control. Who are the major Revenue-Based Investing VCs?

Tips To Value Your Startup

YoungUpstarts

Startup valuation, under no circumstances, can be described as a simple affair. The pre-money valuation of other startups is based on the following factors. It is important for businesses to be duly evaluated because it’s the valuation of businesses that actually go on to draw investors. Your Market Valuation May Differ from Your Worth. Here it should be mentioned that “quantifiable” revenue is a must even if you are ready with a pathbreaking idea.

Non Recurring Revenue Businesses

Rob Go

I’ve been thinking a little about non-recurring revenue businesses. I’m coming to the belief that these are under-appreciated categories of investment, especially since the gospel of recurring revenue, subscription commerce, and SaaS has been preached in recent years. The basic downsides of these sorts of businesses vs. recurring revenue businesses are. But here’s the case for them: Non-recurring revenue businesses can grow much faster.