4 Ways to Increase Your Startup’s Valuation

Valuation matters to both entrepreneurs and venture capitalists (VCs). First, it determines the share of the company an entrepreneur will have to give away in exchange for money. Second, it helps VCs determine risk, potential profitability and return on the investment.

However, startup companies are different because of the use of speculative valuation techniques, the lack of cash-flow history and the enormous risk of failure. Have you considered ways in which you could increase the value of your startup company?

Focusing on traction, people, communication, and product will help improve the valuation and vision of your company for the foreseeable future.

Product: Before you do anything to increase valuation, you must have a product or service that consumers want. To determine commercial viability, conduct detailed market research to ensure that people want what you’re selling. Focus groups, surveys and field trials are great ways to gauge the potential success of your product.

Protecting your product and developing a strategy are also critical steps. Look into obtaining a patent if you have created a new technology or process. And consider who, where, and for how much your product will be marketed.

Gain traction. Most entrepreneurs have heard “get back to me when you have some traction” while seeking funding. When objective third parties begin investing their time, money and resources on you and your company, you are gaining traction.

Traction doesn’t need to equate to revenue, even though it is the best form of traction when seeking funding. Pre-revenue companies can focus on building trial users and qualified prospects. The more users you have and the longer they’ve been with you, the more money you’ll likely receive.

You can also build traction (and gain valuation) by bringing on a reputable partner. Additionally, it helps to secure commitments from well-known distributors, industry experts and key stakeholders.

Focus on people. The people that you surround yourself with are of upmost importance in ensuring the future profitability of your new company. Those people have the opportunity to carry the vision of the company from the imagination into reality.

Who’s on your team? Do you have a seasoned entrepreneur with a good reputation in your court? What’s your background and reputation among VCs? Startups that increase their valuation using the “people” element look for a standout partner to join them. They also create a team of people who share in the vision of the product and the plan.

Communicate your vision. Having a good product is, well…good. But effectively selling your product and vision for your company is paramount when seeking funding. If VCs don’t believe in you and your product, they won’t invest.

Prepare a compelling and exciting vision for your company. Practice your pitch often, listen to it yourself and ask others for objective feedback. You might have just one shot with a VC; make the most of it.

Before embarking on any of these efforts, it’s a good idea to contact your technology CPAs. With their industry experience, they can leverage the lessons others have learned to help you grow your startup.

You have a lot on the line when your company is in its infancy. By increasing valuation, you’ll have a better shot at success with VCs—and once you hit the market.

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