Review of Early Ventures

Traditional methods can be used to value companies with track records of revenue and profits, but they can be used to determine the value of a start-up companies ineffective. Move Too many variables make assumptions about evaluation early ventures with these methods useless.

Determination of the expected growth in sales and earnings performance is meaningless if the success of a start-up can not be confirmed. Could not approve a market may reject the new product or the product in the supervisorythe first place. In addition, several companies on new ideas that are not tested and do not have to rely an established market. Evaluation of start-ups is always important, especially for investors because it helps them when deciding on the percentage of ownership to them. Of the early investors in companies expect to win a good number of their investments. Be expected, in other words, the company that a higher market-to-book ratio to achieve.

It is normal for start-ups, losing moneyduring the first years. Several new technology companies, the internet-based tend to be at a loss in the time they are sold. During times revenue can be applied to, completely ignores the operational efficiency, growth and relative market size.

It is generally found that new technology companies are valued higher than companies from other industries such as consumer goods, chemical and other manufacturing sectors. A prime number different technology sector and traditional sectors is that traditional companies face geographical restrictions based on weight of the product, the responsibility as regulation etc.; technological companies avoid these limitations by using third-party dealers or the Internet. You can expand and grow globally very quickly compared to other sectors, with a very low capital base. In addition, the gross margin could easily be between 70% and 100%, compared to product companies, based on low margins.

Successful> Venture can either be sold to larger companies or they can opt for an IPO. Early venture investors tend to determine two values, the potential value at the time of the next round of fund raising and the potential value of the company at the time of departure or sale. Then determine the value of the venture today, an idea of the different, they would have to win. This method is called "Venture Capital Method".

For the evaluation of a start-up, a venture capitalist, also depends on itsIntuition and perception and knowledge of the industry. The following are some of the key factors that investors should consider, while those judging the value of an early venture:

* Reviews of comparable listed companies

* Addressable market size

* Reviews of merger and acquisition transactions

* Gross margins of comparable companies

* Expected long-term growth rate

* How different the new product or service is

Several start-upsIntroduction of new products and services. In such cases it is difficult to assess the competitiveness of these companies and they are based on the comparative assessment of evaluations will be inappropriate. With cash flow discounting model would be ideal in such cases, if it is possible to forecast the future cash flows. Several venture capitalists prefer the valuation of intangible values, the shortcomings of traditional methods to overcome.

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