Pre-money valuation is essentially how you value your business. It is the value you’ll quote to a potential venture capitalist or other funding source to get funding for your business. The higher (and more accurate) your valuation, the better is your capacity to attract funding.
All you need to do is mind the below factors before your next pitch to a potential investor.
Traction– Does your company have customers?
Reputation – Do your startup owner have a track record of coming up with good ideas or running successful businesses?
Prototype – Does your company have business prototype that displays how the product/service will help.
Revenues – It makes a company easier to value.
Supply and Demand – This includes a business owner’s desperation to secure an investment, and an investor’s willingness to pay a premium.
Distribution Channel – Where a startup sells its product?
Hotness of Industry – If a particular industry is booming, investors are more likely to pay a premium and your startup will be worth more.
Poor Industry – If a startup is in an industry that has recently shown poor performance, or may be dying off.
Low Margins – Some startups will be in industries, or sell products that have low-margins, making an investment less desirable.
Competition – Some industry sectors have a lot of competition, or other business that have cornered the market. A startup that might be competing in this situation is likely to put off investors.
Management Not Up To Scratch – If the management team of a startup has no track record or reputation, or key positions are missing.
Product – If the product doesn’t work, or has no traction and doesn’t seem to be popular or a good idea.
Desperation – If the business owner is seeking investment because they are close to running out of cash.