Deal Insight Series Highlights:

Startup vs long-established company

Learn about the difference between acquiring a startup and a long-established business.

The transcript of the interview follows:

Well there are two main points here: one is the risk, and the other is the valuation. So when you’ve got a well-established business with years of records of turnover, and years of records of profitability, you could use that to apply a multiple to the profits. You can also look at the balance sheet and you can look at the assets that they’ve got sitting on the balance sheet. When you’re looking at a start-up, effectively you are backing an idea and the management team, which is a lot more tricky to value. And therefore when you do that, you have to develop different ways of connecting the valuation which is based on a hope and the future and the actual presence to make sure the valuation is adjusted – up or down – based on the actual performance of the business over a period of time. When you look at a steady business, I mean a business that has been around for a long period of time, it does not necessarily mean they are steady. But if you look at a long-established business, and you look at a steady business in a steady industry like accounting, for example, you could apply a multiple to what the business has done over the past three years on an average basis. And you’ll probably be not far off from the next two or three years.

See the full interview here.