Assessing the Value of High Tech Companies

In a recent post, long-time friend and colleague Michael D’Eath speculated about how the acquisition landscape is changing, especially the extent to which roll-ups seem to be an increasingly frequent exit path for startups. Implicit in this process, of course, is how the startup will be evaluated.

A key component of the 20/20 Outlook process is assessing value in the eyes of potential acquirers. A value analysis framework I’ve found helpful consists of a total of 12 different attributes rated as “strong,”“credible,” “limited,” or “none.” In the diagram below, the 12 areas are built in 4 categories from the bottom up, starting with how flexible, patentable, and scalable the company’s technology is (“Credible Technology”).

Value Analysis Framework

Secondly, market credibility is assessed for how established the company is, the strength of the initial customer base, and how capable the company is in successfully delivering a solution (“Credible Market”).

Next, the health of the business is rated in three areas: vertical packaging, repeatable sales model, and repeatable delivery (“Credible Business”).

And finally, we make an analysis of progress in gaining a good reputation with the analyst community, achieving broad scale customer adoption, and market thought leadership is made (“Market Dominance”).

Assessing the current state of each attribute can highlight areas of weakness that need attention and perhaps more resources, as shown in this example.

Value Analysis Framework example

With respect to Credible Technology, this theoretical company has flexible and patentable technology that is still somewhat limited in its scalability. It’s in an emerging market (i.e. established market = limited) that hasn’t quite broken through to mainstream (i.e. still low on the Gartner hype cycle). I won’t drag you through each attribute, but you can clearly differentiate those that are driving up value and that need attention.