The Value of Valuation

Friday saw the stock market debut of Darktrace, a cybersecurity company that uses machine learning to help detect suspicious activity in computer networks. During the first day’s trading shares rose by 40%, after the company reduced the valuation from £3billion to £1.7billion following investor concern around shareholder Mike Lynch.

The IPO comes just a month after the debut of Deliveroo, which has seen shares fall by roughly 33% after an initial offering that investors felt was far too high given significant concern around rider rights. The valuation and failure to live up to the hype has put significant pressure on CEO Will Shu and has increased scrutiny on the loss-making firm.

These two examples, although at the higher end of investment, provide a clear message for companies looking to raise capital during the pandemic, that getting your valuation right is paramount. When searching for and sourcing investment one of the key things a business must get right is the valuation of the firm. Myriad businesses have struggled to live up to over optimistic valuations but getting it right gives firms a chance to win over investors in years to come.

Through the pandemic we have invested in 5 or 6 different companies which have grown, adapted and pivoted during this period. There have been a huge number of success stories, including Transcend Packaging who since our investment have almost doubled their staff and joined The Sunday Times Fast Track “Ones to Watch” list.

At IW Capital, our founding premise is centred around realistic valuations based on measured growth and figures that are not structured purely for the appeasement of key stakeholders. The key to successful valuation is to value the company based on what is real and the real growth it is experiencing and not on what everyone is expecting or hoping for.

Inflated valuations put a huge amount of pressure on a growing business and its management team. It can also create feelings of disappointment within the investor community that the business may have to rely on in future funding rounds. It is tempting to try to go for as high a valuation as possible as soon as possible but that is rarely conducive to controlled, sustained growth.

To find out more about IW Capital, or for more information on investment and non-executive opportunities, please speak to a member of the IW Capital team today on 020 7015 2250, or email info@iwcapital.co.uk