Selling or valuing your startup? Here’s an essential checklist

Visionary entrepreneur Elon Musk may be the best storyteller in the world. How else can you explain Tesla’s valuation, which at US$48.2 billion is US$3 billion more than Ford, the number two automaker in the US?

Startup valuations are rarely about the bottom line. It’s not how much money you’re making, but how much you can make.

With that in mind, here’s a checklist of things to consider when pricing your startup for a sale and considering acquisition offers. These insights were culled from a panel discussion at Tech in Asia Singapore 2017.

Have you considered the many ways of valuing your startup?

“We try to put some method to the madness,” says Srividya Gopalakrishnan, managing director at valuation and corporate finance firm Duff & Phelps Singapore.

“We use a range of methods, probably around five or six very specialized methods, starting from thumb rule-based methods, to even income approaches.”

Some investors use a scorecard which considers subjective, non-financial, and qualitative factors, such as the quality of management.

Another common method is to benchmark valuations of similar companies to yours. That’s hard to do in Asia though.

“The problem is that at times we don’t have enough data in Asia. We may have to look at other markets, because they have seen what Asia is seeing today, and draw some parallels from them,” she adds.

This Medium post details nine methods you can use to price your company.

Do you have a compelling story to tell?

Singaporean Royston Tay, who sold his startup, Zopim, to Zendesk for US$30 million, believes story trumps valuation.

“The story includes figures, includes tables – you may work with professionals to come up with certain figures. But tables are not sexy. The reason why Tesla is valued at the price it is today is because Elon Musk has managed to sell such a fantastic story about the growth potential of his company,” says Tay.

A VC would rather see a good story well told than a great story untold.

Making a case that your startup has a bright future is a key ingredient of that story. Founders make the mistake of pricing their startup purely on fully-diluted shares, says Gopalakrishnan.

Have you considered the characteristics of the potential buyer?

Have you considered the nature of the acquisition?

Should you get a banker to line up more buyers?

Have you considered your company’s circumstances?