You may have heard the term startup Unicorn, which is a term for startups with a valuation of above US $ 1 billion. But the question is, what exactly is the meaning of startup valuation? How to calculate it?
Definition of startup valuation
Valuation is the economic value of a business. If there is a company that has a valuation of Rp1 trillion, then anyone who wants to fully acquire the company must prepare a minimum of Rp1 trillion. This valuation figure is usually used as a reference to measure how much a company’s business potential is.
As a startup founder, you need to calculate valuations to determine the percentage of shares that will be given to investors when funding occurs. This valuation is also important to determine the selling price of your startup in the event of a merger or if there are other companies interested in acquiring your startup.
Startup valuation versus conventional business
The startup valuation calculation method is actually similar to conventional business. However, because startups in the initial stages usually don’t get any revenue or profit (which is usually the basis of valuation calculations), there needs to be a slight adjustment.
To calculate the valuation of a conventional company, the following things are usually taken into consideration:
• Company value on the stock market (market cap).
• Value of other types of shares owned by the company (e.g. preferred shares, minority interest).
• Company debt.
• Company cash.
From these variables, company valuation can be … Read More