One important valuation methodology is the scorecard method, meaning that we rate your business on the following aspects - giving each on a score out of 10 and then added them up at the end:
the main thing that an investor buys into is the team and in particular the experience. Have you got subject matter expertise? Have you had experience in successfully running a company? Have you raised finance before? Have you worked in the sector? These are all the considerations and the old adage stands true – an investor would rather an A grade team with a B grade business than the other way around…
This is an important metric that shows the potential of the business. The Total Addressable Market (TAM) is the subsect of the total market who will actually demand your product. A further subsect can be the size of the market segment that you are targeting (SAM). Generally, investors want to see that you have an innovative solution address an issue in a HUGE market. Don’t forget you don’t have to hit the whole market day one…
This is important as it tells the investor what stage you are at and the market acceptance of your business. This ultimately will tell them the risk level of the business. If you have paying customers then you have proved demand for your product. If you simply have an idea you think will fly then you are speculating which increases the risk to the investor.
This can take many forms from a patent of a new innovation or from an exclusive license to carry out your business in an area. An investor wants to know that there are some barriers to entry for a newcomer to the market. The more you can defend your market position, the better you are.
Are you in a packed market where it will be difficult for your customer to find you? Are you competing with rivals with big marketing budgets or are you building a market and / or first to market? It is key to understand your position in the market, the dynamics of the market players and your opportunity to build a business.
An early investor will take into account your investment road map. Obviously this is by no means set in stone but if there are likely to be many fundraising to achieve your business plan, the early investor will be thinking of what they their eventual equity stake will be once they have experienced several rounds of dilution – if they are going to be diluted out of sight then they may rethink the investment.
Your business plan
Investors want to see a clear and achievable business plan that clearly identify a problem that your business is solving, the size of the market and highlights the projected numbers. If you have not documented this then your chances of investment are low (but always exceptions). If you are not yet in a position to “go to market”, fear not, we have some partners waiting in the wings to give you all the help and guidance you need – click here for more.