Valuation is an important – and inseparable – part of founding and running a startup. Before you can start attracting investors or apply for a bank loan, you need to know how much your business startup is valued. According to the Finance Masters Degree online department of Northeastern University, there are three main ways a startup can be valued: market-based, asset-based and income-based.
Market-based valuation is the most common approach used by angel investors. When using this approach, you don’t really value the business based on tangible assets. Instead, valuation is done based on the average value of other comparable business. This valuation approach is the reason why top startups are valued so high, even when they are yet to generate a substantial income or amass a huge amount of assets.
Valuation is an important skill to have as a startup owner. Be sure to learn more about the subject by reading the Key to Valuation infographic.