How to evaluate a startup?
The other day I came across a formula in a foreign blog that allows us to evaluate the commercial viability of a startup.
Young and ambitious people are haunted by the success stories of youtube.com and others. It would seem - think up a service that will make mankind happy, create a website, develop it in anticipation of a solid investor and the matter is in the bag. In the wake of the global enthusiasm associated with social networks, each registered user is a contribution to the treasury of the total cost of the project. But how to determine the potential for success in advance?
Venture capitalist David Sliver in his book “Smart Startups” offers the following arithmetic construction:
Perspectivity = Problem to Solve x Elegance of Solution x Management Experience
')
Each of the components can be evaluated in points (maximum value - 3.0). The larger the product, the higher the chances of success. If the result is less than 5, then the idea is most likely doomed to failure. It is better, of course, if the points will not be put up by the owner himself, but by outside experts who know the question.
Owners, in my opinion, are rarely able to adequately assess the value of their holdings, and if it comes to intangible assets, then the tendency to overstate acquires an unprecedented scale. If in previous years it was mainly about inventions, the authors of which drew a bunch of zeros in their imagination, now the creators of startups have taken their place. What do the three classic assessment approaches tell us?
Cost approach As the name implies - a set of direct and indirect costs to create an asset. If everything is done according to the mind, then here are the costs for the office, furniture, equipment, and the actual creation of the product (third-party fee or salary of its own staff) plus the actual costs of advertising and promotion. Probably, it is worthwhile to apply some coefficients, as when calculating the cost of trademarks or inventions, but the area is so new that I haven’t yet met specific methods.
Comparative approach. Surely someone already somewhere was selling something similar. In other words, we need some commensurate counterparts for which the transactions were completed (namely, transactions, because the value of the offer in this area may exceed the wildest assumptions). Per unit of comparison often take the number of registered users. Although, in my opinion, this is a rather abstract concept - it is much more useful to find out the size of the active audience and its structure.
Income approach. Obviously, the key question is whether the project will bring the expected profit, which, in turn, must be converted from the cost of the future to the current? Most sites earn on advertising or additional services, while the risk that expectations are not justified, in my opinion, is much higher than in real business. The role of competitors and such concepts as audience loyalty are too great, sometimes even a change in the ideologue of a resource can negatively affect profitability indicators.
Brief summary: in determining the real market value of a startup, I would first of all try to assess its prospects and ability to predictably generate return on invested capital, while taking a very critical approach to the predicted indicators and taking into account the retrospective (obviously, a very young project has significantly foggy than the one who has proven the consistency of a stable working). But rumors of sales for the fabulous sums of such projects I would “divide into two” at least due to the fact that there is some excitement that provokes investors to unreasonable overpayment. The cost of the creation costs can be used rather as a kind of indicator of the quality of the finished product - after all, the things standing out of the air do not appear by themselves.
Young and ambitious people are haunted by the success stories of youtube.com and others. It would seem - think up a service that will make mankind happy, create a website, develop it in anticipation of a solid investor and the matter is in the bag. In the wake of the global enthusiasm associated with social networks, each registered user is a contribution to the treasury of the total cost of the project. But how to determine the potential for success in advance?
Venture capitalist David Sliver in his book “Smart Startups” offers the following arithmetic construction:
Perspectivity = Problem to Solve x Elegance of Solution x Management Experience
')
Each of the components can be evaluated in points (maximum value - 3.0). The larger the product, the higher the chances of success. If the result is less than 5, then the idea is most likely doomed to failure. It is better, of course, if the points will not be put up by the owner himself, but by outside experts who know the question.
Owners, in my opinion, are rarely able to adequately assess the value of their holdings, and if it comes to intangible assets, then the tendency to overstate acquires an unprecedented scale. If in previous years it was mainly about inventions, the authors of which drew a bunch of zeros in their imagination, now the creators of startups have taken their place. What do the three classic assessment approaches tell us?
Cost approach As the name implies - a set of direct and indirect costs to create an asset. If everything is done according to the mind, then here are the costs for the office, furniture, equipment, and the actual creation of the product (third-party fee or salary of its own staff) plus the actual costs of advertising and promotion. Probably, it is worthwhile to apply some coefficients, as when calculating the cost of trademarks or inventions, but the area is so new that I haven’t yet met specific methods.
Comparative approach. Surely someone already somewhere was selling something similar. In other words, we need some commensurate counterparts for which the transactions were completed (namely, transactions, because the value of the offer in this area may exceed the wildest assumptions). Per unit of comparison often take the number of registered users. Although, in my opinion, this is a rather abstract concept - it is much more useful to find out the size of the active audience and its structure.
Income approach. Obviously, the key question is whether the project will bring the expected profit, which, in turn, must be converted from the cost of the future to the current? Most sites earn on advertising or additional services, while the risk that expectations are not justified, in my opinion, is much higher than in real business. The role of competitors and such concepts as audience loyalty are too great, sometimes even a change in the ideologue of a resource can negatively affect profitability indicators.
Brief summary: in determining the real market value of a startup, I would first of all try to assess its prospects and ability to predictably generate return on invested capital, while taking a very critical approach to the predicted indicators and taking into account the retrospective (obviously, a very young project has significantly foggy than the one who has proven the consistency of a stable working). But rumors of sales for the fabulous sums of such projects I would “divide into two” at least due to the fact that there is some excitement that provokes investors to unreasonable overpayment. The cost of the creation costs can be used rather as a kind of indicator of the quality of the finished product - after all, the things standing out of the air do not appear by themselves.
Source: https://habr.com/ru/post/20771/
All Articles