Pick a Firm with Industry-Specific Knowledge
February 18, 2013, 1:01 PM
LIZ LANGE: I generally find it best to focus on the business itself rather than worry about how much you are worth on paper but there are some instances when it’s necessary.
These include when you’re raising money to expand, when bringing in a partner, deciding to give employees equity compensation and finally when trying to sell. Startups present unique valuation challenges, as much of the value can be speculative and based on future results that may or may not materialize, and slight changes to assumptions can cause dramatic shifts in value.
Often, I find that it’s useful to get a third party involved, both for their expertise and for their ability to provide an unbiased view about your company’s value. There are many investment banks and other firms that have the capability to value a startup. I would suggest selecting a firm with particular knowledge of the industry in which the startup operates.
I also find it important to think through in advance the consequences of obtaining a valuation, particularly in the cases where the valuation does not come in within the range you expect.
A valuation that is significantly higher or lower than expected can cause unexpected issues with a variety of constituents — employees feeling undercompensated, unrealistic sale expectations, etc.