Getting your startup valuation for the first time is super exciting. Who doesn’t love a virtual slap on the back for all the hard work you put into founding and building your business? You’re probably thinking about acquisitions right now, too, and that valuation will indicate just how desirable your startup is and how much you could potentially walk away with after closing the deal.
But what happens if your numbers underwhelm and your startup isn’t worth what you thought it was? You might feel disappointed, or worse, resentful of all that effort you put in. Well, I’d like to put your mind at rest: Your valuation is not some tattoo your startup wakes up with and regrets for the rest of its life – it’s flexible, and you can increase it with a few simple actions.
The key thing is not to let valuations rule your life. They’re part art, part science, and the market (what buyers can and are willing to pay) decides the final number. But if you’d like to know how to increase your startup valuation, read on: What follows is a list of actions that will increase the value of your startup by a factor limited only by your capacity to fulfill them.
Never valued your startup before? Then before you continue, visit MicroMRR and connect your Stripe metrics to get a free data-driven valuation. MicroMRR is a guide based on your real-time numbers, but an M&A professional will consider a broader range of variables. We recommend doing both to understand precisely what you need to do to increase your startup valuation.
Increase Revenue
Yes, I know, this is super obvious. But let’s be serious for a moment. Many, many founders prematurely believe they’re ready for acquisition, when in fact, they’d stand to gain a better price if they simply scaled their startups a little longer. You’d be surprised the difference a year makes – or even six months – especially if growth is accelerating.
Where you are on the acquisition cycle (have you begun prospecting for buyers or just thinking about it?) determines whether this is a suitable course of action. You might need to rethink your customer acquisition strategy, for example, or increase your marketing budget and wait for growth – both of which are okay so long as you haven’t settled on selling now.
We recommend pulling back from acquisition until you’ve increased revenue if you’re not happy with the valuation you’ve received (either from a professional or our valuation calculator). The other action items on this list are effective, but if revenue isn’t high enough to justify your desired valuation, you’ll need another year or two of scaling to close the gap.
Relevant metrics: Annual Recurring Revenue (ARR), Monthly Recurring Revenue (MRR), Churn.
Increase Profit
Yes, another obvious one, but stick with me. Turning to profit to increase your valuation is best done after you’ve scaled. A profitable business with little revenue won’t command the best valuation, but if you’ve managed to scale and generate profit, your valuation will reflect that. Once you’re of a decent size for your industry, profitability is extremely attractive to buyers.
But how do you increase profits? Well, they should, in theory, increase with revenue, but you might also need to review your business model or operational efficiency. Identify where you generate the biggest return on expenditure and then cut back on everything else. Marketing, a top expense for SaaS, is a good place to start. Plug the gaps and only spend on what matters.
Relevant metrics: Customer Acquisition Cost (CAC), Lifetime Value of Customer (LTV), Churn
Cut Expenses
Cutting fat from your startup will make it leaner, tougher, and more valuable. It’s not just about spending less, but spending where it matters. Who’re your most valuable customers? Which products do your customers use most? Double down on these, sharpen your focus, and you might generate more revenue and profits than you ever thought possible.
Swanky offices, international flights, and expense accounts, on the other hand, drain the coffers. As does maintaining a product or service that few people use. Hunt for bloat in your startup and then pop any swelling expenses. Renegotiate with vendors and suppliers. Review your social media campaigns. Consider relocating to a cheaper city where salaries and rents are lower.
Relevant metrics: Cash flow, Expenses, ROI on expenditure, Lifetime Value of Customer (LTV) alongside Customer Acquisition Cost (CAC)
Acquire VIPs & Partnerships
This is where we go beyond the numbers to your startup’s potential for growth. Think of influencers and well-known brands. Having them onboard could significantly increase your prospects. Acquiring such partnerships could introduce you to new markets and demographics you struggled to penetrate before, which could increase the value of your startup.
The same applies to new distribution partnerships. If you white-label your product or service, for example, or another company offers it through their network, you can expect revenue to grow. While it might take a few months to see traction, you could increase the valuation of your startup with evidence of these contracts and relationships. For this to work, however, you’d need a professional valuation from someone who can consider such theoreticals.
Considerations: Brand equity, distribution, KOLs, partnerships
Develop Your IP
Your SaaS startup’s intellectual property (IP) heavily influences its market value. You can increase your startup’s valuation by developing that IP either through fixes and enhancements or nailing down ownership with patents and copyright. If your IP is an algorithm or digital platform, you want to squash all bugs and shirk dependencies so it’s robust on its own.
Considerations: Codebase, software licenses, developer contracts, bug reports, support tickets
Acquire and Delight Your Best Customers
Not all customers are created equal. Freemium members who never pay a cent, for example, won’t boost your valuation (low LTV). Nor will customers that sign up for your special offer and never return (high churn). Loyal and engaged customers who pay for every upgrade and add-on, on the other hand, can increase your valuation considerably (high LTV and low churn). Evaluate your current customers and then plan how to Acquire, delight, and retain the best ones (those that offer the most value to your business).
Are your customers ambassadors or consumers, for example? You want customers to love you so much they nag their friends, family, and professional networks to sign up. Keep a close eye on your Net Promoter Score (NPS – a measure of how readily your customers would recommend you). Ask customers for reviews, testimonials, and interview them in case studies. Listen to and then act on their feedback. Once you’ve risen the review ranks and Acquired more of those high-value customers, you might then have enough evidence to increase your startup’s valuation.
Relevant metrics: Net Promoter Score (NPS), Lifetime Value of Customer (LTV), churn
Considerations: Reviews, testimonials, case studies, customer personas, press
Communicate a Singular Vision
Without a clear vision for your startup’s future, you rely on the buyer knowing what to do with it. While this might be okay for some buyers, others might see it as a sign of complacency or simply won’t understand the specific problem you solve. Buyers want a return on their investment, and unless they understand how to achieve it, they won’t be interested.
Consider where your business will be in three to five years and then create a roadmap and pitch deck that summarizes the opportunity to potential buyers. It might not offer a huge bump to your valuation, but if it’s persuasive enough, and you’ve demonstrated you’ve built momentum towards that goal, it might close the gap between your number and the buyer’s.
Considerations: Vision and mission statements, pitch decks, brand story, the why of your startup
Get a Specialist’s Opinion
Focusing on these areas alone will help boost your valuation, but for an extensive, detailed gameplan and an accurate starting point, you’re best hiring an M&A advisor specializing in valuations. They’ll take the above areas into account and a lot of other factors not so easily summed up here, and will explain the quickest, easiest way to boost your valuation.
Your startup is unique and you need someone who can spend time learning every aspect of your business to give an accurate appraisal of its value. If you’re ready to take your valuation to the next level, hire a valuation specialist directly on Acquire.com. Just create a listing and request a match in your seller dashboard.
The content on this site is not intended to provide legal, financial, or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional before entering into any M&A transaction. It is not Acquire’s intention to solicit or interfere with any established relationship you may have with any M&A professional.
