What is market value? How do you calculate it for a startup?

The market value is the price that an asset or a company would fetch in the marketplace.

Method to evaluate market value for a big company (such as Google) listed on a stock exchange:

Price/Earnings Ratio = Price of a share in market/ earnings per share (company’s net income)

Net income for a company is the gross earnings minus all the expenses(including taxes)

Price to Earnings ratio indicates an extent to which the value of a company’s shares can increase in the market. For example, a company with a high Price/Earnings ratio indicates positive performance in the future. Hence, investors use this formula to determine the worth of an established company.

For a startup that isn’t listed on the stock exchange, the market value is determined through the valuation accorded by investors ( who provide funds to a startup). That means if an investor sets a high market value for a company, its worth increases in the marketplace.

How to determine the value of a startup at an early stage

It’s easy to value an established company. Factors like stock price, revenue can assist in determining the potential of a company. However, for startups, it’s a tough nut to crack. To simplify it, a startup founder should work on the factors that strengthen valuation before approaching an investor. 

Here are the steps to do it: