Fynsa
In recent years, the term startup has gained great popularity in the world. the term startup, which refers to an organization that develops highly innovative products or services that are highly demanded by the market, generally with a strong technological base, and which is expected to show exponential growth in sales.The term startup refers to an organization that develops highly innovative products or services that are highly demanded by the market, generally with a strong technological base and that is expected to present an exponential growth in sales.
In this context, we have seen how many of these companies have achieved large series of capital raising, including important Chilean examples such as NotCo, Cornershop, Betterfly, Xepelin or Migrante, in exchange for a certain percentage of ownership of these companies. But How is this transaction priced, and is the same financial analysis used as for traditional investments?
The answer is not as simple as a yes or no answer. Although there are many traditional valuation methodologies, many times these approaches are not enough to carry out this task properly for this type of companies, since many of them are at an early stage, where they do not yet generate positive cash flows or are very unpredictable, which may result in a distorted value that is far from reality.
Even so, there are ways of adopting these models: for example, the classic "Cash Flow" model. "Discounted Cash Flow Discounted Cash Flow", for example, manages to reflect the long-term value and capture high growth rates through the determination of WACC (Weighted Average Cost of Capital) appropriate to the industry in which the startup is involved.The classic "Discounted Cash Flow" model, for example, is able to reflect long-term value and capture high growth rates through the determination of WACC (Weighted Average Cost of Capital) appropriate for the industry in which the startup in question participates and perpetual growth rates.
Similarly, it is important to consider different non-financial indicators that may be useful to complement this exercise, it is important to take into consideration different non-financial indicators that can be useful to complement this exercise, They allow us to measure the performance of companies in comparison with mature companies in the sector. Some examples are: the number of subscribed customers, the frequency of visits to the platform, the cost of customer acquisition or the customer retention rate. Pn the other hand, simple multiples can be applied to the amount of money transacted through the platform in the case of a Marketplace, or a multiple on revenues. The important thing is to make a comparison that is based on the same parameters for companies operating in the same areas and that these are key performance factors in these areas.
The non-inclusion of these factors or modifications in "traditional" models can generate complexities and errors in the evaluation of these companies.The failure to include these factors or modifications in "traditional" models can generate complexities and errors in the evaluation of these companies, since it would not show the higher proportion of costs that occur in early stages compared to the revenues generated, nor the changes in that proportion in the future or the growth in revenues that can be generated by possible expansions into new markets, or even by adoption of the product in the market in which it is present.
Thus, a proper valuation of a Startup is essential to measure the realistic growth of the company, so it becomes very necessary to have an analysis that includes factors other than the "traditional" ones, in order to correctly reflect the value in the long term and capture the expected growth of the company in the future.This is necessary to correctly reflect the value in the long term and capture the expected growth of the company in the future.
