valuation
Valuation is what a business is judged to be worth, and it is far closer to an opinion than to a fact.
In plain English
Every founder wants a high valuation. Very few understand what they are actually asking for.
Valuation is what somebody is willing to say your company is worth today. It is calculated from profits, revenues, growth and comparisons with other companies, and every one of those inputs is an argument rather than a measurement.
It matters because it decides how much of your company you give away. Raise ₦100 million at a valuation of ₦1 billion and you have sold 10 percent. Raise the same ₦100 million at ₦500 million and you have sold 20 percent. Same money, twice the cost.
But an inflated valuation is a trap dressed as a victory. It sets a bar you must then clear. If the next round is raised at a lower valuation, everybody suffers, staff options become worthless, and the story changes from triumph to rescue.
For a normal business rather than a startup, valuation is more grounded. Usually a multiple of profit, and the multiple depends on how reliable that profit looks to a buyer.
A valuation is not what you are worth. It is what one person agreed to on one day.
Two founders raise ₦200 million each. One is valued at ₦2 billion and sells 10 percent. The other is valued at ₦800 million and sells 25 percent. Ten years later, that difference is worth hundreds of millions of naira to the first founder.
Questions people ask
How is a small business valued in Nigeria?
Usually as a multiple of profit, adjusted for how dependable that profit is and how dependent the business is on the owner. A business that collapses without you is worth far less.
Why do startups have such high valuations with no profit?
Because investors are pricing the possibility of an enormous future rather than the present. That possibility can also evaporate.
What is a down round?
Raising money at a lower valuation than last time. It is painful, it dilutes founders heavily, and it damages morale, which is why inflated early valuations are dangerous.
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