Posted on 1/27/2016

What is my business really worth?

Tom Kelly

Earlier this month, news broke that the popular social media app Foursquare raised $45 million in a new round of venture funding, cutting the company’s valuation to roughly half of the approximate $650 million it was valued at in 2013. 

Foursquare’s plummeting valuation reflects a new trend in the entrepreneurial ecosystem: more cautious investors. 

While in recent years, tech startups have had no trouble attracting investors and big money, the environment is shifting. Now is the time for young companies to take a look in the mirror and reevaluate how much someone would really pay for their idea, especially here in the Midwest, where investors tend to be more conservative. 

Business valuation is highly subjective. Often times, most startup founders believe their business is worth much more than it actually is. And the reason for that is because they believe they will be much more successful, more quickly, than what anybody else perceives. But that’s human nature. 

While founders may be emotionally attached to their idea, reality is that the market has cultural inertia – meaning people don’t like change, even if you have a great product. 

There are two ways to solve this problem. The first is to go sell something. 

Once you start selling to customers, you will have a much better understanding of your potential growth rate and profit. At that point, all the equations fall into place. This is especially true for investors in Michigan and the rest of the Midwest, where they say “show me” rather than taking risks like investors on the coasts, in places like Silicon Valley, Boston and New York.  

But don’t think of venture capitalists as vulture capitalists. Because another way to solve your valuation problem is to build relationships. 

A common mistake entrepreneurs make is seeing investors strictly as sources of money. To be successful, entrepreneurs in Southeast Michigan need to take advantage of the resources available to them, not only with programs like the Automation Alley’s 7Cs™, but also through the relationships they build with investors, who can get them to more customers and more strategic partnerships and be a source of knowledge that will drive them to earnings a lot faster. 

About the Author

Tom Kelly | Automation Alley

Tom Kelly, Automation Alley COO, manages the organization’s 7Cs™ program for advanced manufacturing entrepreneurs across Southeast Michigan. The program includes intense coaching and a commitment from Automation Alley to invest resources and capital. Companies receive assistance and guidance from Automation Alley’s entrepreneurship team to help accelerate the commercialization of their product, service or technology. Follow Tom Kelly on Twitter @Tom_W_Kelly 


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