Thursday, September 5, 2013

IdeasInc StartUp2013! How Venture Capitalists value your business?

It has been 3 months since I have posted my reflections as I was really swamped with waves of challenges that kept hitting both Envisage and Collegify. I will perhaps share some of those in later posts so that aspiring entrepreneurs can learn from my pitfalls too, but well... That's just the common journey which all entrepreneurs have to face!

Nonetheless, I will like to share with you some key lessons learnt from the StartUp2013 conference which I just attended last Saturday @ *SCAPE!

As spoken by Mr Leslie Loh from Red Dot Ventures, how enterprises are valued by a Venture Capitalists are through the following elements:

1. Market validity of the product/services - If your product/services has a proven market segment with paying clients, then you will have a much stronger pitch. If you are simply still fondling with an idea or prototype with non-paying clients, your business is still too early for venture stage funding.

2. Maturity of founders or board members/advisers - The wisdom and expert knowledge/background of the founders/advisers matters. This provides the investors the confidence on the probability of success of your business. However, this might not be impeded by your age (If you are too young), what matters is that you show the level of maturity in understanding what will feasibly allow your business to succeed. But that being said, please do also retain your passion and idealism to succeed. (Perhaps a good mix of personalities displayed within your team will assist in portraying this to your investors)

3. Stage of the enterprise - A growth stage venture with proven track record will always garner a better deal than an earlier stage business. Hence, you have to be really realistic with your expectations on how you value your business. To put it simply, if you have a business with a proven revenue stream and working product that shows demand, you will definitely be able to negotiate for a better valuation. And that's what venture stage fund providers will be requiring.

In addition, you have to understand that return of investment expectations of VCs, are actually on the level of 10x to 30x. Hence, if you are unable to convince them of such profit potential, you will likely not be able to attract their investments. Thus, availability and growth plans beyond the shores of Singapore is critically important!

Alright guys, all the best to your enterprise journey! :)