At Fellow Funders, we have been stressing the idea that the time for the Spanish entrepreneurial ecosystem has come to start making investors and project promoters aware that #NOTEVERYTHINGISOK. We must start discriminating by always applying professional instruments without any discretionary power at any time. Today we want to ask you if we are adequately valuing Startups.
Is there a Widespread overvaluation of startups in Spain?
One of the biggest doubts we have at Fellow Funders is whether there is a generalized overvaluation of startups in Spain. Are startups being properly valued? Are future expectations being overvalued? What elements are being taken as relevant when valuing a startup? Is it being considered that the valuation of a startup must always have a path that allows investors to obtain an adequate return for the risk they are assuming?
Valuing a startup, in the opinion of Fellow Funders, has a lot to do with analyzing deeply its business model, analyzing its present and especially future economic-financial data and properly assessing its expectations.
- Are these the criteria that prevail when valuing a startup?
- Is its business model perfectly known and is its scalability and sustainability adequately considered?
- Is the importance of the entrepreneurial team being considered and how much it conditions the success of the startup?
- How is the necessary “expertise” of the management team valued?
- Are the metrics that are considered relevant in a startup real and achievable?
- How much does the expected evolution of these metrics condition the valuation of a startup?
Criteria used
At Fellow Funders we believe that strictly professional criteria is not always being used to value a startup. Logically, we understand that valuing a company in its most incipient stage is difficult. For example, it is obviously not something as simple as discounting projected cash flows… However, we think that on too many occasions, valuations are being made by comparing the business models of Spanish companies with the models of other much more developed ecosystems (Silicon Valley, Israel…). Taking these ecosystems as a reference can generate an evident overvaluation of the startup.
Sometimes, when talking about the possible overvaluation of a startup, the argument used to deny it is that if an investor is willing to pay the price set, this implies that the startup is not overvalued. This argument, however, is for us quite debatable.
The information is not always complete and perfect for investors and entrepreneurs, and neither are the expectations of the entrepreneurs (e.g., to create and develop a company, to seek a more or less rapid exit ) nor those of the investors (e.g., to help the company in its development, to accompany it with new rounds of financing, to seek a rapid exit) known with complete precision.
As investors, we talk about the fact that the multiples at which companies are listed on the stock exchange are very high, yet we accept as true the totally exorbitant multiples of companies in their early stages. Is this logical?
Our Priority
At Fellow Funders one of our priorities is the proper valuation of the startup/ SME that we are going to present to our investors.
Our valuation is based on proven mathematical models and we believe that this is one of our most differentiating factors. A correct valuation makes it possible for the investor to pay a fair price and for the promoters to apply for new financing rounds in the future if they meet the previously established milestones.
Objective valuation
At Fellow Funders we believe that it is extremely important for both the entrepreneur and the investor to have a valuation of the startup as objective as possible. Although we admit that it will always be conditioned, in part, by the future development of the company, which does not respond to any strict mathematical criteria.
At Fellow Funders we continue to believe that equity crowdfunding investment is an interesting product, but always bearing in mind the need for portfolio diversification and the risks assumed.
We also believe that Trust, Transparency, Security and Monitoring, our operating standards, must be more than mere words or good wishes and must be translated into effective commitments with investors and project promoters.
