We have extensive experience in writing investment and valuation reports on startups due to a multi-year partnership with a venture capitalist group. These companies are typically in late Seed to Series B stages, raising funding from both individual and institutional investors.
Now that the Title IV of the JOBS Act has come into effect in the USA, we can help both startups and prospective investors to determine what a particular startup is worth. Our financial due diligence can identify potential problems with the business model, forecasts, management team, etc.
Investors can use our reports to understand the strengths and weaknesses of a company they are considering for investment, as well as to assess whether the share price is justified given the associated risks. Startups can use our reports as part of their presentation collateral, to show investors that they have done their homework, and to justify their share price. Our due diligence questions may also prompt startups to rethink their approach or better understand their business economics, which is always beneficial. Institutional investors can use our services to outsource financial due diligence and valuation and keep costs down, while financial content publishers can use our reports to add additional value to their subscribers.
We acknowledge that there is a certain conflict of interest between investors and startups as the former want the cheapest price, whereas the latter want the highest price. That’s why we do not “price” rounds – we come up with an objective value that the parties can use to negotiate the best deal that would work for everyone.
When evaluating startup investment opportunities, the founding and management team is probably the most important factor. We usually are in direct contact with management since we need to get information from them, but any investor must always strive to get a feel of the management team, paying attention to subtle things.
In addition to the management team, we also analyze the company’s business model, financials (both the funding terms and the historical financial performance), marketing strategy, target market, important risks, and the exit strategy.
Our valuation approach is usually based on discounted cash flows (DCF). Many people think DCF is not applicable in startup valuation, but we believe they are wrong. After all, why invest if you don’t expect to make money in the end? (and money comes from cash flows). We admit that multiples are a popular tool and do use them, but we feel DCF is less biased than multiples (value versus price!). We are always open to our clients’ suggestions, and if you want to value based on 10x Year 5 projected revenue, you’ll have it!
To ensure the best results, we must have access to relevant information. Thus, we should be able to ask questions and request files from the company management. We also need to see the following data, if available:
- Cap table;
- Funding round term sheet;
- Details of past funding rounds;
- Financial statements;
- Corporate documents;
- Investor presentation decks and other files that describe the product, the business model and other aspects of the company;
- Other files, determined on a case by case basis.
The more data is available to us, the better the quality of the final report.
Of course, all this is subject to NDA and we will respect all confidentiality requirements and sign the necessary paperwork.
You are probably eager to see a sample of our work. Unfortunately, the nature of startup valuation means that we base our reports on private and confidential information that we cannot share with third parties. As mentioned above, we have been working with an international venture capitalist group for several years. We can put you in contact with them for reference, provided that you are not requesting this to solicit funding from them. In the meantime, you can have a look at the samples available here.
Startup investing is very risky. Some numbers say that up to 70% of startups don’t make it. Our reports do not constitute offers to buy or sell equity in these companies. Our services concern only the financial aspect; they do not replace a qualified audit, legal due diligence or any other due diligence effort a prudent investor would need to perform. Always do your own due diligence before investing! Our reports reflect our opinions based on the facts and information available to us at the time. We accept no responsibility for investment decisions based on our reports. By using our services you acknowledge that we bear no responsibility for the outcome of your investments.