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Valuation Series #12: Financing Round for emerging companies

Updated: Dec 5, 2022

Would valuing an emerging startup be different from a international unicorn? The answer is yes!

In this edition of The Startup Club Valuation Series, we look at different financing stages to better understand the underlying valuation methods.

The first step in estimating the Enterprise Value is to determine the stage of development of the enterprise. These stages are summarised as follows:

Stage 1. Seed Round

Enterprise has no product revenue to date and limited expense history, and typically an incomplete management team with an idea, plan, and possibly some initial product development. Seed capital or first-round financing is provided during this stage. Securities issued are more commonly in the form of preferred stock.

Stage-2-3. Series A through F

Enterprise has no product revenue but substantive expense history, as product development is underway. The second or third round of financing (or more, depending on the company) occurs during this stage through venture capital firms. Securities issued are in the form of preference stock.

Stage-4. IPO

Enterprise has achieved financial success such as revenue, operating profitability, or positive cash flows. A liquidity event such as IPO or sale of an enterprise could occur at this stage. Securities issued are typically all common stock, with any outstanding preferred converting to common upon an IPO.

Stage-5-6. Exit

Enterprise has established profitable operations or the generation of positive cash flows. IPO or sale could also occur at this stage.

Understanding these difference will help you better navigate the startup valuation and fundraising landscape.

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