What Are the Three Best Ways to Maximize Valuation?
The best answer should be obvious. Show that you have some traction. Traction is defined as sales to bona fide paying customers. Nothing gives an entrepreneur better leverage in negotiations with investors than an upwardly trending sales graph over a period of six to twelve months. Absolutely nothing. Forget nonsense about business plans, elevator pitches, powerpoint presentations, and even patents.
Traction is the ultimate validation of your claims.
That’s what the Startup Guide is all about: teaching entrepreneurs how to achieve traction before the funding comes in.
What’s the second best way to maximize valuation for a startup if it doesn’t have traction? The answer is to create simultaneous interest from multiple investors. In effect, you strive to create an auction type environment for maximum benefit to yourself. This is what good intermediaries and business brokers attempt to do when selling a real company.
The third–and by far the weakest–method is to rely on number-crunching tactics such as spreadsheets showing DCF (Discounted Cashflow Analysis) to support your desired valuation. No one in their right minds will take this approach seriously.
But hey, it’s worth a shot if you can’t use either of the first two methods for valuation maximization.
Find out more about valuation negotiations.
Hi, thanks for all the precious free knowledge shared on this website! One question. Here you are saying that the second best way to maximize the valuation is to create an auction type environment, but in the negotiation page you recommend not to reveal to the investors that such environment is set. I guess an auction becomes very useful only if all the parties are informed about the other offers. Could you please expand on this? Thanks!
Not sure where I said that. Are you referring to the article by Matt Blumberg on negotiations?
From: http://antiventurecapital.com/raise-startup-capital/startup-valuations/startup-valuation-negotiations/
“Announcing the fact to each group that there is another one bidding against them is usually a mistake. It makes you sound like a high pressure used car salesman type. So don’t volunteer the information. If asked, be coy, “There could be other interest but it’s really too early to say.” Then just shut up and smile.”
Yes, precisely. Be coy about it and just drop hints. If you make a declaration about others being interested you do come across as a car salesman.