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Valuation – A “Game Changer” for Startups

Posted by Health Entrepreneur 06/20/2016

According to market analytics, the investment in the startups of healthcare domain has escalated by 78% from the last year. The main reason for this escalation is the fact that the investors want to be “in the saddle” to take risks and venture into new healthcare business. For any startup to get funded, valuation plays a key role. The investors are interested to invest in companies with a promising picture. So, startups probing for funds or profitable exits should analyze each factor contributing to the high-rise of valuation. The prevailing essence of this think piece is to assist the healthcare startup entrepreneurs in assessing the valuation factors, work upon them and raise the company valuation.

 

Introduction
 

Thinking of becoming the “Next big thing”?  You need to know what it takes to grow big. Let us take an example. Two healthcare startups are seeking funds- one with mind-boggling ideas; and the other mind-boggling ideas and a promising market value! Which startup has more likelihood of receiving the investment? Well, the chances of the second startup getting the funding are more than the first one, as the promising market value assures an investor of future profits on the investment made.

 

For any startup, the journey from a zero-sized company to a “Billion Dollar Club Member” requires a lot of strategies and funds. Seeking funds is a complicated process; however, proper business homework makes it less complicated. Company valuation fills in an important place in the homework as the investors hunt for companies with a promising valuation.

 

Valuation is a process for estimation of the net worth of any company. For a new startup, a clear understanding about certain points related to startup valuation is worthy. The complete understanding of valuation includes
 

 1)Significance of valuation  
 2)Variety of valuation
 3)Vital plug-ins for startup valuation
 4)Marketexits
 

Significance of Valuation

 

Valuation, in early stages of a startup, means the growth potential, and not the value of the company. The valuation aids the startups to:

 

Variety of valuation methods

 

The valuation of any startup helps them to seek investment. Most of the investors will ask about the company valuation in the first place. So, it is very important for the startups to choose and exercise the correct valuation method to acquire precise values.

 

There are four main methods of valuation:

1) Score card method
2)
Check-list method

3) Venture capital method

4) Discounted Cash Flow (DCF) method


The startup valuation not only helps in attracting investors, but it gives the complete picture about the market valuation of the company i.e. price the market is ready to pay. 

 

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