How do you value a startup's strategic partnerships and customer relationships?

The business valuation aspect of partnership involves identifying opportunities and expectations. If a partnership offers a long term beneficial value with increasing business opportunities, it is absolutely normal and expected to prioritize such partnership, give needed support and aid to foster continuity. It is business, certainly, no emotions.

I have been a supporter of innovative startups for many years now and have seen successful businesses being built from scratch. In my humble opinion, the key to taste success is a long term vision and not just build a business for the exit plan. If an entrepreneur has a bright idea with efficient processes and wholehearted support of his/her own team in the initial stages (regardless of size), it’s very easy to align with the prudent investor’s strategy. Facts tell and stories sell, so the forecasted valuations seem much more real to the Angel investors once there is a clear and transparent way of conducting business in the long term. Fudging data or prospective clients will only let you travel a short distance on your path to success.

Valuation is always a combination of stories and numbers, and people often focus too much on one or the other - rather than the combination. Intangible assets such as strategic partnerships are an important growth lever for many startups, and their importance should be explained to potential investors as a part of the story. In combination with this, the impact of these partnerships should be reflected in the financial model which then directly influences the valuation. Deliver a coherent pitch which combines both aspects, and prospective investors will have the best understanding of your vision.

This is highly underrated. I always recommend startup founders to include strategic partnerships in their pitch strategy, because they contribute to business success. I use the below model: I create a grouping of partnerships based on > quantitative and qualitative > short term and long term > branding and sales driven > social and industry focussed. Each of the above broad groupings have their own contribution and valuation.

This involves assessing various factors such as the nature, duration, and exclusivity of agreements. Long-term contracts with large, loyal customers hold more value compared to one-time deals with smaller, uncertain clients. Partnerships with reputable, complementary companies are more advantageous than those with competitors or low-quality providers. To evaluate their impact on the business model, revenue streams, and market position, startups should categorise and analyse the different types of partnerships and relationships they have established.

I determine the Valuation of partnerships based on the benchmarking of their remit. On a broad note, i use the below: > quantitative (sales, footfalls, ATV, TAM, etc.) and qualitative (Referrals, reviews, repeat purchases, brand ambassadors, happiness factor, brand visibility etc.) > short term ( tactical short term remit) and long term (deeper partnerships that contribute over time) > branding (visibility and brand acceptance in the market) and sales (revenue) driven > social ( social causes, CSR contribution etc.) and industry (building authority, networking etc.) focussed.

In my view, impact of Strategic Partnerships and Customer relationships cannot be assessed based on multiples. It would almost always be a function of how much they contribute to the incremental cash flows. using various methods (Multi Period Excess Earnings or With-Without Method) would be ideal to assess their impact on a startup's value.

In my opinion I will use only the criteria free cash flow, because the same try to consider the expected flows. The macroeconomic factors are relevant so they have to be part of analysis.

I am always conservative on returns and liberal on risks. From the risks perspectives, the safeguards i take are: > I assume i may lose 50% of my partners for any market or operating reasons thereof, and calculate the impact of these losses (quantitative and qualitative). > I also try and build a pipeline of more partners. If i lose existing partners, it acts as a replacement, else it works as an extension of my existing partner base.

I will add the power of suppliers depending the type of product or services they supply. On the other hand it is important to consider the transfer risk if the company belong to South America. The premium of control it is important to add in the discount rate.

I always advice founders and promoters of startups and brands to be conservative on the value contribution of each individual partnership. Basis the above, i will specify the valuation method, assumptions, expected variations and industry benchmarks where possible.

The allure of high-profile advisors can often cloud judgment on a startup's true value. As Warren Buffett warns, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." Evaluate the tangible contributions of star advisors rather than their name recognition. Focus on real-world impact over glittering resumes to avoid overvaluation pitfalls. Aim for substance over show to build a genuinely valuable enterprise.

Startups often bring star investors or professionals on their Cap table or Advisory boards to boast of their teams and command higher valuations. It's very important to assess their contribution to the business. It can be fatal to assign premiums to the startups just based on their "Teams Slide" of the pitch deck. Understanding their roles and the value they bring is essential to value the partnerships.