Value Internet Startup, Knowing the value of internet startup such as e-commerce or e-related business is one of many business owners’ overwhelming and challenging tasks. They don’t always see the value of their business, even when there is massive cash flow or limited income.
One thing or the other can lead to a value of internet startup considering selling his business. So, whatever it is, knowing the company’s value is very important to avoid selling cheaper than the fair price and regretting later.
To value internet startup, both art and science mindsets are involved. The science part involves comparing companies like yours that have been sold recently. The art part goes into the business more – how the team or employee’s strength is, the technology innovation, etc.
Check out the methods we recommend for you to use these valuation methods when value internet startup.
1. Standard Earnings Multiple
The standard earning method offers deep insight into the company’s cash flow and how the value of the business can increase with time. Besides this standard profit model, other factors you can consider are the intellectual capital of the company’s products and services, the past incurred debt, and funding rounds.
2. Discounted Cash Flow Method
The DCF method is used to value your internet business and other industries like consumer products and biotech. To use this method effectively, put the following into consideration:
a. Have the market share acquisition forecast
b. Estimate the company’s product total market and its expected growth.
c. Forecast the company’s cash flow. This could be done by analyzing the internet startup’s variable and fixed costs, capital used in working, and expense needs.
3. Comparison Valuation Method
This is usually the standard method investors, and founders rely on when they want to value an internet business. It is typically the fairway of the business valuation if there are fewer other alternative startup methods. The disadvantage of this valuation methodology is the change in the subject company’s value due to different market conditions. These market conditions can be contributed by political and economic problems in an area.
4. Human capital and market value method
It is not easy for an investor to find the value of an internet startup as they all usually have a meager assets ratio – tangible and intangible. To put it more precisely, a potential buyer or an investor should find the value of the human capital – team or employees, ideas, and technical know-how. You can check the employees involved in project development to weigh their expertise and experience level. With these, you can have a rough estimate of what the business valuation is.
5. Customer patronage and loyalty
You can know the value of a startup when you know their customer-based corporate. Can they attract and retain customers? Was there an increase in the number of their customers? Are the customers loyal enough to come back in the future? These questions are essential determinants to knowing the value of an internet business you want to buy.
