How is the valuation decided for a startup?

Valuation is decided between the investor and the entrepreneur. At the early-stage/concept stage, there is no science or formula to arrive at a valuation. Hence, you go by generally accepted benchmarks in your country, and eventually conclude a deal at what the entrepreneur and investor feel is a fair valuation.

What valuation investors may offer for the same plan depends on a variety of factors, including the quality & experience of the team, the investors view of the potential of the concept, the competition, how easy or difficult it is for other competitors to enter the market, is there any IP or competitive advantage which this team has, etc.

In all this, the quality of the team is he most important consideration for investments at the concept stage or early-stages. The same business plan, with exactly the same details could get a very different valuation for a team of college students executing it than what an experienced team would get for the same plan.

 

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Author: Prajakt Raut

Prajakt Raut is the founder of Applyifi.com, and author of the book for startups - ‘Starting Up & Fund Raising’ Prajakt personal goal in life is to encourage and assist a 100,000 people to become entrepreneurs. _____________ Prajakt is the founder of Applyifi - an online platform that provides startups a 36-point scorecard and assessment report on the venture's investment readiness [www.applyifi.com], and helps them improve their odds of getting funded. Prajakt is also the founding partner of The Growth Labs, a platform where growth-stage companies get sharp, incisive advice from senior professionals and experienced entrepreneurs. [www.thegrowthlabs.in] Before starting Applyifi, Prajakt was the head of operations at IAN, founding member of a leading incubator, and the Asia-Director for TiE (2004 - 2007). Previously Prajakt had co-founded Orange Cross, a healthcare services company, and was part of the founding team member of Idealake Technologies. While in college Prajakt had founded a printing business and has spent over 10 years working in leading advertising agencies. Prajakt’s book, ‘Starting Up & Fund Raising’, helps startups understand an investor’s perspective, and helps them improve their odds of getting funded. The book also helps entrepreneurs understand the building blocks of a business.

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