Risk Factors Summation

Risk Factor Summation Method is another qualitative valuation method often used when the startup has not reached revenue generation and its financial forecasts are not very reliable.

Retiba Valuation

Three steps in startup valuation with Risk Factors Summation

STEP 1

You have been asked 12 questions on how risky you see the business from this perspective. Depending on your experience, choose one of the very low to very high options for each question.

STEP 2

Based on the information you have about similar businesses which are operating at the same maturity and market level, insert a value in the questionnaire.

STEP 3

Click on the “Calculate” button and after observing the estimated value of your business, check the graphs provided by Retiba.

Calculate Valuation

Risk type Risk assesment
Is it possible that the current business management team will impose a high risk on the business in the future?
Very Low Low Normal High Very High
Is the business at the initial stage of the maturity cycle that is inherently risky and likely to fail to a great extent?
Very Low Low Normal High Very High
Can unfavorable legislation and political conditions lead to business failure?
Very Low Low Normal High Very High
Is it possible for the business to have trouble producing and failing altogether due to limited raw materials?
Very Low Low Normal High Very High
How much your business may be affected by sales and marketing problems?
Very Low Low Normal High Very High
Given your awareness of the ecosystem, how likely is it that the business will have trouble raising capital in subsequent rounds?
Very Low Low Normal High Very High
Given your awareness of the market, how intense do you assess the competitive environment the business will face?
Very Low Low Normal High Very High
To what extent can the emergence of new technologies in the future jeopardize the existence of the business?
Very Low Low Normal High Very High
How likely is it that the business under investigation goes through litigation crises and fails?
Very Low Low Normal High Very High
To what extent can unfavorable international conditions and interactions with other countries put the business at risk?
Very Low Low Normal High Very High
To what extent can the business under investigation be exposed to the crisis caused by brand reputation?
Very Low Low Normal High Very High
How likely it is for the potential lucrative of the business under investigation to be in trouble in the future, and the company will not be able to make a good profit margin for its products and services?
Very Low Low Normal High Very High
Initial value of comparable startup:
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Startup Valuation by Risk Factor Summation Method 
Risk Factor Summation Method is another qualitative method of startup valuation that is often used when the startup is not profitable and its financial forecasts are not very reliable. Risk Factor Summation Method provides you with the pre-money valuation, and its philosophy and view of valuation is such a way that according to its knowledge of the market, quantifies the risks the business encounters and considers the effect of the sum of these risks on pre-money valuation. Thus, the more adverse the risks to the business, the lower the value of the startup, and the more opportunities these risks bring about for the startup, the greater its value. 
Considering the risks which a business encounters depends on the startup’s field of activity, its maturity level and other conditions that the valuer has considered, and there is no specific questionnaire like Score Cards Method, for Risk Factor Summation Method. Sometimes, due to the nature of the business, the operational (management) risk of the business is highlighted and the valuer considers different aspects to improve it, and sometimes it is possible that the environmental risks are further evaluated by the valuer.

Risk Factor Summation Method is carried out based on the comparison and experience. That’s why this method is applied to value pre-revenue startups that are in the early stages. 
The main advantage of Risk Factor Summation Method is taking into account the critical risks of business in determining the value of a startup. For this reason, it is always recommended to the investor to apply this method at early stages. However, it should be noted that the dependence of this method on the perception of valuation team would decrease its accuracy. 

It should be noted that in the process of startup valuation, it is not sufficient to reach a definite number as a result of valuation, and you as a valuator should be able to calculate the effect of different parameters on the valuation result. 

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