The Valuation question is a question every entrepreneur eagerly expects and fears at the same time. It is a stamp of worth on what you worked so hard to create. It is The question, the  one you’ve been waiting for all along and still the one you’re never sure how to answer. And in case you’re not yet an entrepreneur you may have still wondered about how these billion dollar valuations are made and how experts come up with the huge figures. If you are nodding right now, then this article is for you. However, if you expect this article to give you some exact straightforward answer then you’d better stop reading. We are not going to give you the exact long formulas used by financial experts and investors valuating your company. What we are going to give you in this article are a few tips that can help you get a more clear image about the valuation your startup will receive when discussing with a potential investor.

Value is relative to future expectations

This is an obvious and essential thing you should keep in mind when trying to estimate your company’s worth. The value of an asset is dependent on its future cash flow and on its market value. In valuating a mature company, past earnings and their trending are considered a guarantee for future potential (keep in mind that past earnings indicate future earnings potential, but they aren’t a guarantee of these future earnings). That is exactly the reason why startups are so difficult to value: the lack of historical financial data and the impossibility to predict future expectations and to verify entrepreneur’s forecasts.

You’ve come a long way and now you are… here

Another idea for valuating your startup would be to have a look at your startup’s stage of development and look at the general valuation numbers for each stage. These numbers for a web or software business can be:

- business plan stage – 100,000 $ to 1 million $

- early development stage – 1 to 4 million $

- early customer traction stage -5 to 15 million $

- scaling stage -15 to 100 million $

- rapid penetration stage – 100 million to 1 billion $

Of course, the ranges you see above cover a wide range of possible cases and they are terribly inexact. But they are data you can compare your current situation with.

If you want a more tangible approach, we will now tell you a little bit about the approaches investors use to valuate business they consider putting their money in. There are 3 possible approaches to estimating your company’s value. I will tell you a bit about each of the 3 without covering them more in depth. This will be the subject of future special articles covered by experts in the area. You can estimate your company value using one of the following approaches:

Asset approach

You estimate your company’s value by valuating the firm as a financial option. Place a fair market value on all physical assets your company owns from computer equipment to software, assign a real value to intellectual property – patents and trademark, monetize existing clients, add up sweat equity for founders and add the value of hired proffesionals in your team. By adding them up you could get an idea about your startup’s valuation. However this approach doesn’t tell you anything about your real market value as a whole or about your startup future business potential.

Income approach

With the income approach, you estimate the future cash flow that could be taken out of the business without endangering future operations. The most common methods used in the income approach are the Net Present Value method, the Equity Cash Flow method and the Adjusted Cash Flow method. The Net Present Value method is the most popular of the 3.

Market approach

In the market approach, you compare your startup to similar companies whose stock is publicly traded. You find comparable businesses who recently received financing. Or you can also have a look at similar companies’ recent offerings. This is usually also used as a secondary valuation method to verify the estimates you already made through the asset or income approach. Valuation is after all what the market will pay for your startup. The problem is that it’s generally very difficult to find accurate numbers for these transaction plus they are usually confidential.

There is also the Cost-To-Recreate model which is a much easire model but that doesn’t exactly capture the future potential of the starutp

The valuation of a startup company is so difficult especially because of the mostly negative cash flow these companies have in early stages. With innovative startups especially, the reward lies mostly in the future. It’s true that in some cases significand rewards are projected later. Nevertheless, estimating current value in spite of the negative present tendecy is not a piece of cake and it depends a lot on the way you pitch your start-up to potential investors.

If you have a cool project and/or a cool team to back it up and you want to move it to the next level, Springboard might be your ticket to the moon.

The Cambridge-based web business accelerator has been launched this year by Jon Bradford, puting together almost 100 investors and mentors for all the team accepted. The accelerator includes a 13 weeks bootcamp programme for shaping, building and geting the attention of the investors. Winning teams will receive seed funding, tons of menthoring sessions and a place on stage at the Investor Day event, talking place at the end of the programme. Bottom line, Springboard sounds like a great experience for boosting your startup, meeting incredible people and, of course, getting financed.

Springboard is focused mostly on web based software startups founded by teams of 2 or 3 people, who will move for the whole 13 weeks period to Cambridge and work in the awesome ideeaSpace office building, part of the University of Cambridge.

Jon Bradford, the founder and CEO of Springboard, has a large experience in financing and guiding startup teams. Jon has been a VC associate and business consultant for more than a decade, while also developing The Difference Engine startup accelerator in Middlesbrough.

If you are interested in knowing more, you can meet Jon at Bucharest Hubb this Wednesday, February 9, from 10:30 to 15:00. Jon will share his thoughts with you regarding Springboard and entrepeneurship from 10:30 to 11:30, while from 12:00 to 15:00 he will be available for public or private pitches of your startups and providing you with valuable feedback.

Please register on the Facebook page of the event, as there is a 50 people limited capacity.

PS: you can also meet Jon in Timisoara, on February 8 in Timisoara.