We’re often asked what the value of a startup company is. Everyone in the big business world who is doing investing (the investment bankers and the venture capitalists), do rates of return, ROIs, cash flow analysis, and studies of how large the market is. They’re a whole series of things that are mathematical calculations, but that’s not really how the valuation is established for startups. The usual process starts with an investor comparing your business to every other deal they have on this table, in terms of the management team, how far you’ve taken the business, the idea, and the size of the market. Then the investor says, “Is this deal as good as the other deal and what’s the valuation difference between this deal and this other deal or the other deals that I’m looking at?” Finally, they end up choosing the deal that has the best value for their dollar as well as the company they understand and believe will succeed.
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