# Valuation of a Start-up Valuation of a start-up refers to the process of estimating the economic or financial worth of a newly established business. Unlike an established company, a start-up may have limited operating history, uncertain revenues, few tangible assets and a business model that is still developing. Therefore, start-up valuation is a challenging but essential activity in entrepreneurship and small business management. It helps entrepreneurs, investors, financial institutions and other stakeholders determine how much the business is worth and what share of ownership should be exchanged for investment. The valuation of a start-up is important because entrepreneurs often require external finance to develop their business. When an entrepreneur approaches angel investors, venture capitalists or other investors, the investor normally provides funds in return for a certain percentage of equity. To decide how much equity should be given, both parties need to estimate the value of the start-up. For example, if a start-up is valued at ₹4 crore before investment and an investor invests ₹1 crore, the post-investment valuation becomes ₹5 crore. The investor would therefore receive approximately 20 percent ownership, assuming there are no other adjustments. Start-up valuation differs considerably from the valuation of a mature business. An established company can be valued using historical sales, profits, assets and cash flows. A start-up, however, may have negative profits, limited sales and uncertain future performance. Its major sources of value may be its business idea, technology, intellectual property, customer potential, management team, market opportunity and future growth prospects. Consequently, valuation involves both quantitative financial analysis and qualitative judgement. One of the important factors considered in start-up valuation is the