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Company negative valuations explained
Company negative valuations explained

I got a negative valuation. What does it mean, and what should I do?

Mekyas avatar
Written by Mekyas
Updated over a year ago

What is a negative valuation?

Meaning:

A negative valuation occurs when based on the current projections

  • the company is raising more money than it is worth

  • the future positive cash flows are not enough to compensate for the negative ones

Cause:

The negative valuation is likely not connected directly with the company, it is a mathematical result of some of the methods likely due to mistaken interpretation of financial projections.

What to do in case you get a negative valuation?

1. Check that the Questionnaire is completed

Make sure your questionnaire is completed and all the questions have been answered by clicking on "show only unanswered". Check that you have answered all the questions for each category.

2. Double-check the Financials are all done

Confirm that all the data required for the valuation is correctly entered in the financials table.

If this resolves the issue, you should no longer see the negative valuation banner, and your updated valuation will be displayed.

3.a Double-check revenues and costs projections

How conservative/reasonable are they? Are revenues too low or costs too high, especially in the last projected year?

3.b Add more projected years

It might be expected for a business like yours to have a considerable amount of negative cash flow at the outset. For example, if you are raising significant capital to develop a hardware product and don't expect to be revenue-generating in the first three years.

In this case, you should add more projected years and consider the positive cash flows you will eventually generate.

3.c Make sure the selected industry is suitable for your business.

Some industries have a "heavy" default working capital (inventory, payables, receivables) – which can significantly absorb the free cash flows to equity.

Please be sure that is also your case by either checking the industry or adjusting the default working capital.

Industry selection can be changed in the questionnaire. (Question 19)

Adjust the default working capital. (1st step)

Click "OK" to edit Equidam's default values in the white rows that affect the working capital. (2nd step)

💡 Is the valuation still negative?

Please don't hesitate to contact us! Send us a message to the chat in the bottom right of the page. We will be happy to look into this.

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