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What are the "Three Ts" of startup valuation?

If you've ever tried to Google how to do a traditional business valuation, you've undoubtedly seen that it relies heavily on past financial performance such as EBITDA, EPS, and other earnings multiples.


But what if you have no past performance to go off of?!


When trying to value a pre-revenue company I use an unofficial guidance broken out into the “Three Ts”: Traction, Team and Trends.

Traction is what your company is doing internally and within its control to impact its growth; the team is a mix of internal talent and external connections of the key founders, and trends are those external, but undeniable factors that impact your startup.


Traction:

• Number of Users – Having existing (and recurring) customers is key

• Marketing Effectiveness – Showing you’ve attracted high-value customers for a relatively low cost

• Growth Rate – Demonstrating growth with a small budget and lean operational team

Working Protype – A minimum viable product (MVP) proves you have the tenacity and vision to bring ideas into reality and enhances the


Team:

• Proven Experience – While a more experienced leadership team is preferred, even inexperienced first-timers can partner with a mentor or startup veteran

• Diverse Skills – A blend experts whose skills complement each other.

• Commitment – While a few part-time employees is fine, founders need to have a solid team with the time and dedication to make sure the startup gets off the ground.


Trends:

• Emerging industries – The more unique the product, the less competition (for now)

• Consumer demand - If your product is similar to too many competitors, it is harder to find a willing investor. However, if you have a rare patent that is related to a news-worthy idea, it could interest more investors



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