How do you value a trading startup?

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How to value a trading startup?total contacts turnover? Or profit or actual turnover any metrics just curious to know bcos today’s tech startup say even they burn money they valued at billions

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Most of this tech startups seems to created to “clear” the money if you know what I mean, so it’s not really a thing here. I would value at profit first, but it’s just me. How big it"s turnover anyway ? Something worth mentioning ? IF so than on that as well for sure!

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I am assuming you are talking pre-listing scenario. In case of IPO book runners get into valuation process along with due diligence by accounting firm.

Before listing is a big grey area. These are mostly venture capitalist or private equity players. The funding is decided basis a multiple factors:

  • volume driven (like gross merchandise)- volume taken out from traditional offline sources
  • disruption to existing landscape(Uber-traditional taxis)
  • associated up stream and down stream business (You Tube-Google)

Private equity use catalyst+ style of funding (they take funds from banks and add their risk factor above and many others).

This is a publicly available article, best is talk to venture capital firm.

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If a business is trading as primary activity, the only way to value it is based on Cash lying with the business, and consistent profit historically. Btw businesses that are into trading don’t really raise money based on valuations as it would be horribly valued. Trading is unlike other regular businesses and can have huge volatility in income. Unless there is some IP in terms of a strategy, trading firms will maybe be valued between 1 to 5 times the cash it holds.

So typically a firm that is trading and has consistent profitability to display won’t dilute equity like a normal business, but will register themselves as hedge fund and run some kind of profit sharing above a certain hurdle rate from investors. Typically it is 20% of profits above fixed deposit returns. There might be a fixed 1 to 2% fees on the AUM as well.

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There is no set method to value such things as trading startup at least I haven’t seen that someone else except other brokers do bought them if you know what I mean and that’s really the problem, I would apply traditional metrics with that matter.