Crowdfunding Valuation – How Do You Value a Company?
When considering equity crowdfunding, finding out the valuation of your company is one of the vital aspects of starting your campaign. Crowdfunding valuation is important when running a campaign, as it has the power to draw in investors or scare them away. Company valuation is also used to determine how much equity you should be offering to your investors once your campaign is over. The value of your businesses equity is determined is from your overall valuation and the amount you are going to be raising.
When setting your valuation for crowdfunding, you should think beyond the immediate round of finance that you are seeking. Some companies, such as Veeqo, do more than one round of equity crowdfunding. Setting your valuation too high could cause a risk in the next round of crowdfunding that you may take part in. You should take into account future rounds by creating a road map of your finances and should always plan ahead with your valuation.
Crowdfunding Valuation – Key factors to consider when valuing your company
When deciding your crowdfunding valuation, there are certain factors that you should take into consideration. The main factor to be considered in the valuation of a company is the investor demand to be apart of your crowdfunding campaign. Other factors to consider are shown below:
- Market Size – the larger the market in which your business operates, the more potential you have to raise investment when crowdfunding. The bigger the market, the bigger the potential valuation you can have.
- Traction – if you have evidence that there is a high amount of traction for your business with good growth rates, this helps show potential investors that your company has the right idea and could result in a higher valuation.
- Stages of development – if your company or product is still an idea, then it is very unlikely that it will have the same valuation as a product that is already out in the market.
When setting your valuation it must be set on a fully-diluted basis. This means that you should take into account the share capital of the investee, including all of the share options, convertible debt or any sort of convertible securities. This is done so that the equity you are offering to investors will not be diluted by any existing options.
Crowdfunding Valuation – Methods for calculating company valuation yourself
One of the company valuation methods that you could use is comparing your business to those who operate in the same industry as you. As a starting point to calculating your company valuation, you should take into account the valuation of companies similar to yours, to know whether or not the valuation you have set is too high or too low.
When looking at similar businesses to calculate your valuation, you should ensure that they are a similar size to your business, work in the same industry, operate in the same sector and also where they are based. When looking at other companies valuations, it is always better to go lower than their current valuation. You can find out the valuation of a company by finding their market value online and then using the market capitalisation method to figure out their overall value. The way in which the market capitalisation method is utilised is by finding out how many shares they have outstanding and multiplying it by their current stock price which would give your their value as a whole.
The reason for this method is that it could generate a greater interest in your equity crowdfunding campaign. Reduced valuation means that you can lower any financial projections you have and surpass them, showing that your company has momentum, which would draw in investors as they are more likely to be interested if they can see that a company or product is making money. It can help draw in a better pool of investors helping you gain more investment.
Crowdcube offer a tool which offers insights from businesses in the same sector as you, that have seeked a similar amount of investment. The tool can be found in the link below:
Another way to calculate valuation is through the feedback method. Valuation is never set in stone, and can be changed even during your crowdfunding campaign. The feedback would be from investors, as it is possible to have a private crowdfunding page until you have reached a certain percentage such as 35%. Some campaigns have seen phenomenal changes when they have lowered their valuation and have seen high levels of investment within a few days.
A third type of way to do company valuation is to look towards the assets that you currently hold. For asset valuation you would look into all tangible and intangible assets and total up their overall worth, you would then subtract any liabilities that you may have to work out the overall valuation of your company. You will have to ensure that all assets you hold are regularly updated within your books to make sure that you have an accurate figure of what your company is worth.
Crowdfunding Valuation – Seek expert advice on crowdfunding valuation
To value your company you could use a variety of services in order to work out your valuation. A popular method would be to use an online tool to work out the crowdfunding valuation. You can use a tool such as equity net, where you input a variety of information such as what industry you work in, what your assets are along with other bits of information. After you have submitted the information required it will calculate your valuation for you.
The second source you could use to calculate your crowdfunding valuation is to seek advice from finance professionals. You could seek help from an accountant who can help you identify what your current valuation is for your company. Going through someone who works in finance is one of the most reliable ways to identify your valuation, however, compared to other methods, the cost is higher as you will have to pay for the accountants time when they work out your valuation, compared to calculating it in-house.
Crowdfunding Valuation – Conclusion
When calculating your crowdfunding valuation there is no clear and concise way to calculate it. The most important thing that you can do is research on similar crowdfunding campaigns and look into their valuations, how you have created a value and by showing evidence to support you company valuation with a clear financial forecast showcasing your company growth. Valuation is the key way to work out how much equity to give out to your backers once your campaign has officially been funded.
Crowdfunding valuation is a key factor when preparing and running your crowdfunding campaign as it can make or break your crowdfunding campaign. It needs to be carefully considered and you must make sure that you have evidence to support your growth to show potential investors that there is a future for your company and that their investment is going to pay off in the future.
Do you need advice on how to create your crowdfunding campaign?
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