Continuing the series on startup valuation, The Startup Club Director Dulal Das talks about key factors to consider during Series-A & subsequent financing cycle.
During post-seed stage financing, startup valuation becomes more complex. We outline below the key questions to ask yourself in the process.
1. How much financing do you really need?
Be realistic with what you are asking for. What will you do with the money, and what will that allow your business to achieve?
2. Determine the stage of the Start-Up Business Cycle.
Linked to the first question, you should be careful not to overestimate or underestimate your position in the market.
3. What is a reasonable valuation of a Business?
Do your research - what are your competitors valued at?
4. How much control you are going to give up?
If your goal is to ramp up the business and exit, you might be willing to give more control in exchange for the boost in capital. But if you plan to retire with your startup, be careful not too give too much control to new investor.
5. Assess the equity dilution impact from SAFE Agreement (Seed Financing) during Price/Equity round
You want to make sure that your current shareholders stay happy with the new investor on board.
6. Sensitivity Analysis of the next probable Price/Equity round if and when it is required based on 5 years' financial projection and the probable equity dilution.
You always need to think several steps ahead - if you plan to raise more money in the future, do not make this round too high at the risk of over evaluating your company.
7. Are you willing to personally guarantee a debt?
Measure how much risk you are willing to take for your startup.
8. Debt and Equity mix decision & Sensitivity analysis
Knowing the trade off between debt and equity is key - be careful to evaluate them.
9. Are you finance-able?
Prepare your arguments to convince investors.
By Dulal Das
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