How to estimate the cost of a B2B SaaS startup at the pre-Seed round of investments?

Working with unique projects that have no analogues yet, it is very difficult to choose an accurate assessment method. The project itself may be unique, but the market in which it will generate profit is already clear and growing, having determined the potential market volume and potential market share, it is possible to predict the future cash flows of the project itself. The https://gloc.al/ project fits this description very well, since on the one hand it is unique, thanks to this, it was accepted by the respected accelerator of technology startups https://www.linkedin.com/company/in5dubai/. And on the other hand, its market – lead generation and SEO is clear and has huge potential. Thus, having such a combination of factors, the best choice for evaluation will be the discounted cash flow method (DCF).

Discounted Cash Flow (DCF) is a financial modeling tool used to estimate the value of a business, typically a B2B SaaS (Software as a Service) startup. It is a method of valuing a business by estimating the future cash flows that it is expected to generate, discounted to present value.

The DCF methodology is based on the concept of the time value of money, which states that a dollar today is worth more than a dollar in the future due to the potential for earning interest. This means that a business’s value can be estimated by projecting its future cash flows and discounting them to the present value. This makes it possible to compare the expected value of the business to the current market price.

Example of Discounted Cash Flow

The first step in the DCF process is to estimate the company’s revenue and expenses over a set period of time. This typically involves creating a financial model that takes into account the company’s current operations, as well as any future developments or investments. This model should be as detailed and accurate as possible, as it will be used to generate the cash flow projections.

The next step is to calculate the net present value (NPV) of the projected cash flows. This is done by discounting the future cash flows to their present value using a discount rate. The discount rate is typically the cost of capital for the business, which takes into account the risk associated with the company’s operations.

The final step is to compare the NPV to the current market value of the business. If the NPV is higher than the market value, then the business may be undervalued and may be a good investment opportunity. On the other hand, if the NPV is lower than the market value, then the business may be overvalued and may be a bad investment.

Using the DCF methodology to estimate the value of a B2B SaaS startup can be a complex and time-consuming process. However, it is an important part of the financial modeling process and can help investors make informed decisions about whether or not to invest in a business. By accurately estimating the future cash flows and discounting them to the present value, investors can compare the expected value of the business to the current market price and make an informed decision about whether or not to invest.

Author: Roman Fisenko

Financial manager in Glocal LLC in5 Dubai incubated

linkedin.com/in/roman-fisenko-b58337240

roman@gloc.al

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