Scalability and teams, key factors when valuing startups
06 de March de 2019
06 de March de 2019
An Investor and Co-founder and CEO of Fellow Funders, the equity crowdfunding platform, Francisco Mariscal also works as a Managing Partner at Belerofonte Capital, a financial boutique offering comprehensive guidance on corporate finance and strategy.
With a professional career specializing in the world of banking, this entrepreneur is also a former student of EAE Business School, where he took the Executive MBA in 2014-2015. In a session entitled "Startup valuation: Economic and Financial Analysis", he gave some valuable tips in relation to investment and developing successful business models.
The initial valuation of a company
When valuing a company in the seed phase, the methods for valuing established companies are often used (Comparables, DFC and Liquidation), which do not apply for startups. In Mariscal's opinion, "the business model is the key factor and it cannot be valued using a single analysis method". The key to this valuation must be something that gives the investor some projection without being too hard on the entrepreneur". The business angel advocates using a scientific method and professionalizing the calculations as much as possible because "the starting price is not as important as the viability of the project".
The leap from entrepreneur to businessperson
When embarking on rounds of financing, Mariscal recommended asking only for what is required "to do what you need to so and, once you have achieved it, start a new stage and move on to the next round of financing". It is also important to look at your competition. "If you are not ready to run, don't enter a race". In this respect, he advised the participants to distinguish themselves from other models, reinvent themselves and do a lot of tests. "Measure everything. The more you measure, the more efficiently you can do things. Don't be afraid to do an about-face".
In the takeoff phase of the project, the concept of scalability is very important, "although this is easier to observe after a few years, as well as earning enough money to cover costs. Entrepreneurship is not the same as being self-employed. "Never take more money out than you need to live on, unless you are going to have more pressing concerns that you company". At a personal level, Mariscal does not usually invest in projects on which the entrepreneurs are not working full-time and exclusively. He also advised the EAE Lab entrepreneurs to get to know the investors and have interviews with them because "nowadays, there are more financing options available and more players".
Francisco Mariscal went on to mention the method developed by the British professor of entrepreneurial initiative, Rob Johnson, which analyses the features that a project needs in order to be investible. The methodology is underpinned by 6 variables: market, advantages, team, timing, scalability and exit.
Based on this, the CEO of Fellow Funders emphasized the need to define the market that we are innovating for very well, identify the target audience and their behaviour, and establish a differential competitive advantage. In Mariscal's opinion, the timing is not the biggest priority, but he does place a great deal of importance on the teams and the scalability of the projects. "A lot of projects fail in a short period of time, others last under 10 years. For them to be scalable, they have to work in three of four countries". The ¡final stage, known as the exit, focuses on the monetization because, "although 70%-80% of investments fail, no investor is going to put their money into a project that isn't going to make a profit".
The importance of teams
The team is essential for Francisco Mariscal. "When investing, you don't normally invest in just one person". With respect to building teams, the investor shared his personal experience. "There is no better way to get financing than through your human value", he explained. Moreover, in Spain, a startup takes 6.7 years to develop and each stage of the project is different. Therefore, solid teams are needed with the power to overcome the obstacles.
The investor went on to analyse a range of aspects, including the partners' agreement, knowledge of the sector, the distribution of tasks and their leadership. Most importantly, it is worth taking the time to think about building the team. "As you take steps forward, people will become committed to the company and you develop your capacity to retain talent".