Skepticism has no place in mind when we say that startups are the show stoppers in the business world right now. 

We are surrounded by startups and if you follow the news, you must have formed an image of a startup as a group of guys who started an incredibly innovative business in their garage with some ground breaking business strategy, but in reality what defines a startup??

A startup is a high-growth fuelled business structure powered by disruptive innovation, created to solve a problem by delivering a new offering under conditions of extreme uncertainty.

Precisely, a startup is a business that

• Grows fast,
• Disrupts the market or industry,
• Solves a problem, and
• Operates under extreme uncertainty

In India, if we try to dig the past & find out when all the startup culture really started we need to chart out a rough timeline. We could probably say that a major turning point would have been in1980, the N.A.S.S.C.O.M. was on the rise & Rajiv Gandhi, the then Prime Minister introduced the Liberalization of the Computer Industry which led to the surging growth of the digital industry in India. 

The term Startup is often coined with the rise of Silicon Valley which had a huge impact on the technological development of the world since the 1970s. But unfortunately, things got haywire and thedot.com bubble burst, causing one of the biggest crashes in the global economy in recent decades.

With 65 percent of its population falling under the age bracket of 25 to 35 years, consumed with the constant fear of being unemployed, Indians IT professionals started looking for newer alternatives, and many who were fired from their jobs decided to take a step forward in the startup direction.

Many famous startups in India like Policy Bazaar, Zomato etc. were founded during this period only.

It was the year 2016 when the term of ‘Start-Up’ was given the official recognition by the country’s legislature, since then almost every segment in the start-up ecosystem has witnessed exponential growth making India the world’s third-largest start-up hub with almost 29,000start-ups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) as of February 29, 2020.

Govt. has shown its vital interest in the growth of startups with its innovative schemes like START UP INDIA INITIATIVE, STARTUP INDIA SEED,CREDIT GUARANTEE TRUST FUND FOR MICRO & SMALL ENTERPRISES(CGT SME) etc.

Global investors have also poured money into Indian start-ups, encouraged by improvements in the ease of doing business and the regulatory framework by our esteemed govt.

UNDERSTANDING STARTUPECOSYSTEM

Ona macro level, a startup works like any other company. What distinguishes a startup from other businesses, though, is the way a startup goes about doing that. It aims to create an entire new template or pattern that forms an ecosystem under which an idea has to be nurtured and has to be brought to the commercial platform. They often do this through a process called iteration in which they continuously improve products through feedback and usage data.

 Often times, a startup will begin with a basic skeleton of a product called a minimal viable product (MVP) that it will test and revise until it’s ready to go to market. While they’re enhancing their products, startups are also generally looking to rapidly expand their customer bases.

This helps them establish increasingly larger market shares, which in turn lets them raise more money after due diligence and selection of appropriate valuation process.

PARAMETERS AFFECTING VALUATION OF A STARTUP

Management Efficacy

Skilled human capital is vital for any organization. Company employees contribute skills, creative abilities, experience, and knowledge to the business as well as the valuation of your company. 

The employees will determine the effectiveness of production and service delivery thus accelerating valuation.

Industry Outlook

A business valuation requires a working knowledge of a variety of factors, professional judgment, and the industry you are related to.

This includes recognizing the purpose of the valuation, the value drivers impacting the subject company, and a deep analysis of your sector, competitive and economic factors, as well as the selection and application of the appropriate valuation approaches and methods.

Growth Prospects

Performed regularly, valuations provide a pretty good measure of how you’re doing compared to the growth path you’ve set for your business.

To be most effective, growth prospects can be utilized in tandem with your strategic business plan and should be referred to as a component of any significant decision for developing value for your business.

Viability

Startup viability means that a business is (or has the potential to be) successful. A viable business is profitable, which means it has more revenue coming in than its spending on the costs of running the business.

If a business isn't viable, it's difficult to recover. The business would need to increase revenue, cut costs, or both. Viability is closely linked to profit as well as solvency and liquidity thus playing a crucial role in valuation.

Economic Moats

It is the ability of your business to maintain a Competitive advantage or differentiation from the nearest competition. The presence of economic moats in your business gives an affirmative sign to a higher valuation as it eliminates industry competition.

Business Model

Innovative business models lead to massive cost savings & efficiency gain. A new data-driven model aids to value your business value with current market trends.

Traction

Traction is exactly what an investor is interested in when you are looking for business valuation to sell your business. Traction is basically a measure of the output of a working business model.

Execution Capability

Measuring execution capability provides decision-makers a scorecard that identifies projects rendering a higher probability of profit while preventing vulnerabilities. Because of its acceleration towards growth & profit, it increases the probability to attain a higher valuation.

TRANSCENDING STARTUPVALUATIONS FROM NADIR TO ZENITH

We, at Corporate Capital ventures, assure to provide tireless efforts and best assistance to make your startup reach the heights. To ascertain better and successful valuation of a startup business, a step-by-step roadmap has to be prepared as failing to plan is planning to fail.

Bootstrapping

In the business world, Bootstrapping has become a common process by which a new business commences its operation without spending a single penny or by inducement of a little amount through external funding. This means that a founder will attempt to grow their company without the influence of venture capital or significant angel investment. 

In general, there are two stages of bootstrapping:

    1.Stage one starts with seed money – which pertains to a small accumulation of personal savings or some funding coming from friends and family. 

    2.Stage two involves making sales and bringing customer-funded money into the equation. 

Niche Factor

Startup owners should find a niche in their industry that has underserved or unmet needs.

In order to find a niche, the following strategy can be referred

    ·        Selection of target audience

    ·        Defining an unmet or underserved need

    ·        Customer Base Research

    ·        Creation of Business Plan

    ·        Marketing business to the target audience.

Brand Image

A strong brand creates pull in the marketplace because it lets your mindshare be larger than your actual market share.

Startups that don’t focus pro-actively on building their brand image are making it harder on themselves to command a higher valuation in the venture or capital markets. As much as users and engagement contributed to your early valuation, brand and its strength are amplifier of your market value. It is like a premium that the market or investors bestow on you, as a reward for having penetrated their minds and the market at large.

Better Margins

Valuation is highly correlated to margins. This makes sense because investors are happy to pay a high price for an asset that is growing fast. What is less obvious is that margin can also have a meaningful impact on value, by demonstrating the profit capacity of any given company though not today, but when the company reaches maturity (i.e. Steady State). 

Burn Money Probability

Startups need to spend a lot of cash to push toward success, so the goal is not as simple as reducing the burn rate. It is crucial for every startup to understand the unit economics and cost of growth and then it should aim for about 12months of runway.