The importance of understanding the value of your tech company

23 April 2021 / Insight posted in Articles

If you run an ambitious tech company and are considering a crucial scale-up, you should read this.

Let’s say you are planning a Series A round or an exit at some point in the next 18 months. You are growing fast but may be loss-making. So how do you go about valuing your company? What value will investors arrive at? And how?

Knowing what contributes to the valuation process is vital, so that you know what potential investors or buyers are looking for.

Investors and buyers will need to make assumptions about your growth plans. They will look for evidence to specifically demonstrate your growth agenda and, most importantly, your future revenue and profitability. In fact, loss-making tech companies can have high valuations because they are investing on the expectation of future earnings.

Often, however, the best gauge of your expected future earnings is your past earnings. Demonstrating how you will be able to deliver value in other ways will be essential for early-stage high-growth tech companies.

Studies show that investors and buyers, in valuing a tech company, look for the specific drivers that will underpin the long-term growth of your company and hence its value. Managing and understanding these key drivers is something that successful companies do well. The drivers include value proposition and brand, extent of owner reliance and strength of management team. We help our clients focus on a list of ten key drivers.

For example, great companies will be able to demonstrate a clear and compelling value proposition that is known to and valued by target clients underpinned by a scalable business model. Research reveals that tech companies demonstrating a focus on these key drivers are more likely to have long-term success and, so, high enterprise values.

Investors want to see how your tech company measures up, so being able to demonstrate a focus on these key drivers is linked directly to the value of your business.

Getting help from the experts

Considering a crucial scale-up in the next 18 months? Our team of technology and corporate finance experts can help you arrive at a credible forecast, basing assumptions on historical performance, KPIs or contracted revenue.

We understand the dynamics of the tech industry and how investors and buyers will value your business. Talk to us about your strategy and let us help you to prepare your company for maximum valuation. Click here to see some of our recent work.

If you are looking for support with growth, investment or a disposal, contact either Nick Winters or Paul Winterflood for a no-obligation discussion.