From start up to scale up
September 5, 2023
The startup to scaleup journey is one that is challenging to say the least and requires skill, tenacity, and exceptionally hard work.
It is also a journey that often takes place at breakneck speeds. Brian Rothenberg, writing for Forbes HERE, describes the period of rapid growth between startup and scaleup as having to “keep the wheels on the bus” whilst also driving at 100 miles an hour and simultaneously building the rest of the bus.
Progressing from startup to a scaleup is a crucially important stage in a business’s life and one that only a small percentage of companies are able to achieve.
There are two key issues that startup businesses must consider in order to become scaleups; how to do it and when to do it. Accessing capital is the fundamental issue of growth for new startups and, as we are all aware, it has not been easy to raise money recently.
The question of when is one that carries significant risk. Markus Wagner, in a recent LinkedIn post you can read in full HERE, commented on a StartupGenome survey which found that 74% of startups that entered the scaleup phase “failed due to premature scaling” and those that attempted to scale prematurely “grew 20x slower”. His advice to ambitious founders was to stick with your milestones and industry benchmarks.
This is an area we take a keen interest in as many of the companies that we value are in this crucial stage. We see the difficulties accessing both adequate and appropriate capital as a key risk when we are doing a valuation. “Risk to raising capital” is always an impairment we examine. Another related issue is whether the amount being raised is sufficient to deliver the forecasts underpinning a valuation. Usually, I am pleased to say, the forecasts we use are approved by the board and do meet this test, so we do not have to worry.
It is just possible that “peak down round”, in this economic cycle has been or is being reached around now, certainly in the US. If it has, this should be good news for private company valuations as average comparables will soon start to show an uptick.
Do get in touch if one of your clients needs a valuation. We can help whether a company is at the startup, scaleup or any other stage of its growth. As many of you know we can typically complete a report in around five days.
