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How To Create A Killer Equity Crowdfunding Pitch - Step 10: Setting A Valuation
Setting a valuation for your business is one of the most important parts of your fundraising pitch. In fact, it can be make-or-break. Your valuation is going to be under some intense scrutiny and if it doesn’t stand up, there may be no start up.
Some questions you need to ask yourself:
- How much are you looking to raise?
- How much equity are you offering in return?
- What is your pre-money valuation?
- What is your post-money valuation?
- How have you calculated the value of your business?
- Is it a fair and reasonable calculation?
Let’s have a look at finding out how we can start to answer the first couple. So...
How much are you looking to raise?
One of the things you should be most aware of is how much money you are going to need for both short and long-term success.
Things you may need to purchase in the short-term could include things like software, online domains, or parts, etc; the things you need to get started.
Long-term refers to the length of available runway you need/will have before the next round of funding is required.
In return for how much equity?
If you offer up too much equity, you run the risk of losing creative control or diluting its value. A start up or early stage business should ideally be offering between 10-20% equity in return for growth capital.
Working out your pre-money valuation
Other factors which should be closely considered, when you are setting a valuation for your business, include:
This term refers to anything intangible, which includes things such as Patents, website coding, and copyright.
IP like these can seriously push up the valuation of your company, if they are worth something to someone else.
One way in which to find out if your IP could affect your valuation would be to see what companies with similar IP have valued theirs at, and then by adding how yours is different (and ultimately, better).
So, this refers to anything tangible your business may have. From the property from which you operate, to the equipment you use, and the domain name of your company.
All of these things are worth something and should be considered when setting the valuation of your company.
Can you be copied?
The truth is, that anyone can. You just have to make sure that your version is the best it can be with the resources you have.
In terms of valuation, however, it is worth considering how long it could take someone to copy and recreate your business idea.
If it’s something complex and technical, you will probably have a stronger barrier to entry, and this should be reflected in the valuation you set.
This is where you ask yourself, realistically, how big can your business grow? This is possibly the hardest part of setting your valuation and should be considered objectively.
A strong business plan will help to give your valuation a better standing when approaching potential investors.
Make sure you have enough data and evidence to back up your valuation, and clearly outline the reasons behind why your business is worth what you are saying it is worth.
Potential investors want to know that your business, be it service or product, is a viable option within its chosen field.
They want to see evidence of existing customers and any data you have for those transactions/interactions.
Having an established user base before seeking investment will mean that you can set your company valuation a little higher.
The reason for this, is that you have information from which you can calculate the lifetime value of each customer.
Visibility and hype
Is your business already hitting headlines? The more hype there is surrounding you, the more credibility you will have, in the eyes of potential investors.
They want to know if there is a buzz around you: press mentions and events are great indicators of interest.
Perhaps your business has even caught the (unsolicited) eye of potential investors. This is all worth taking into consideration.
Is there anything else like your business out there? Or are you the first? Having a new-to-market idea/product/service is a great position to be in.
If there is a gap in the market which your business fills, and in doing so meets a customer need, this will have an impact on your valuation.
Research and development should be an ongoing process as part of your business, and so you will be aware that whatever market you’re in, it will constantly be changing.
Pre-empting these changes, although difficult, can be extremely useful. It means that you should have an indicator for when you need to raise capital in order to get your business out there.
The last word
Finding a balance between overestimating and underestimating is key. Back up any claims you make with strong evidence and consider your assets carefully.
As with anything, if you are unsure and want to know more, talk to someone such as an insurance broker, financial advisor, or an accountant.
GrowthFunders: getting you started
If you’re looking to raise growth capital for your business, you’ll no doubt already know how difficult it can be.
Spending time away from your business, travelling up and down the country to meet face-to-face with potential investors, can often be time-consuming and ultimately fruitless.
Finding the right platform from which to pitch to many investors, all at once, is a great solution. GrowthFunders, the online equity-crowdfunding and co-investment platform, is the right one. Now, what do you need in order to make your pitch the best it can be?
Now you’ve read all the tips, it’s time to get started! Put a great pitch together and raise the capital you need in order to take your business to the next level.