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09 July 2022

How investor evaluate early stage startup

Startup valuation works as a process to quantify the worth of the startup or startup idea.

Startup valuation is one of the most significant parts of any fundraising process. While

investing in a startup, investors exchange a part of the equity in the company. This is where

the role of startup valuation comes into the picture. Fundamentally, the process of valuation

removes the guesswork and presents the estimated value of the startup. Start-up investing is

associated with high risk yet probability of high returns if

done right. Nevertheless its gambling but based on combination of various

factors .Valuing companies is tricky. The methods used to value a company are

dependent on the stage of development of the startup. you need to evaluate a

startup idea before jumping in.Regardless, all of these business ideas have

different requirements and factors that play into them. That is why

entrepreneurs have to evaluate their ideas that have those characteristics and

requirements. Ultimately, you need to make sure that your idea is not going to

fail you since it could cost you a lot of money and problems if you don’t know

what you are doing.

There are few factors that should be evaluated.

specific problem

or need the market is having. For example, when Walkman was

launched, the problem people had was that they couldn't listen to music

while they were going for a walk. Not only should there be a problem,
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but the product offered should be the best or only solution in the

market for that problem. Also, you should ask yourself if the solution is

viable, meaning, is it possible to create (in case it isn't built yet) with the

technology available.

Are there enough people that will

benefit from this idea? Not only that, but are these people interested in

purchasing the product? Also, the target market should be clearly

defined by the start-up.

ly, are there any

products or solutions that address this problem? In what way is the

product differentiated from the others. Is the start-up going to patent or

protect the product from being copied? The thing here is to see how the

product the start-up will produce will be more attractive for customers

than any other current or future product. The competition. What current or future solutions,

technologies, or companies may compete with yours in the market? How is yours

differentiated; what's its unique value proposition relative to the competition; why will your

solution win? What intellectual property or other barriers to entry will keep you ahead of the

competition?

The best-case scenario is that your solution is readily doable by you, but you'll be putting up

big barriers for others to follow. If not, you have to demonstrate how you plan to stay ahead

of the pack that will converge on this hot opportunity.

behind the start-up. Check out their story. What qualifications they have

and what experience do they have that will back them in this enterprise.
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all the aspects of the start-up in its early stages. How much money does

the start-up plan to make with it. Also, what marketing strategies will

they use to attract and keep customers.

just starting up make assumptions that aren't based on facts. A company

that already has customers is a company that has already proven (not

only in theory but in practice) that its product sells.

-up look like it

has a long-term plan with specific goals? Planning for growth and having

a 5-year plan are two factors that point out to a company having an

organized and motivated mindset.

a possibly successful start-up. An ethical team will ensure that relations

will go smoothly with all stakeholders. A start-up that communicates

with its shareholders (both good and bad news) in a timely manner

should be considered. This is because this shows how important

investors are for it.

In the end, the plan is to provide a good estimate of how practical the business

is and if it has the stuff to survive for decades. This of course all depends on

the resources and the finances at your disposal. This is why you evaluate a new

startup idea before jumping straight in. Soon enough, you will get a clear

picture of what you need to do. That may require a completely different

execution plan than what you envisioned.

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SOURCES/REFERENCE

https://startupmate.substack.com/p/-how-to-evaluate-startup-ideas

https://insiderbyfavcy.com/startup-evaluation

https://eqvista.com/company-valuation/startup-valuation-methods

https://blog.startupstash.com/how-vcs-evaluate-start-ups-f9f2305d2d74?gi=2776c91eda30