5 ways to assess the net worth of innovative ventures in Hong Kong

As a child, perhaps 99% of us had some “rare” possessions that we call them our own collection. On thehigh end, some of us were obsessed with baseball cards, comic books, or Star Wars memorabilia.

For others it was Teddy Bear or just pretty rocks we found along our way to school. Through the test of time, whimsical change of kids’ fondness, we ask ourselves: Is once my beloved collection really worth something today? Perhaps that’s a myth we will never have answer to until the day of meeting a treasure scout.

Again, the other some of us who had outgrown their inner kids, they have turned once their passion into real business, as the new generation of internet millionaires has a startling average age of 26. Among them, we not only have the famous Facebook founder Mark Zuckerberg, we also have 29-year-old Andrew Mason founder of Groupon and 24-year-old David Karp founder & CEO of Tumblr riding along the pack.

In Hong Kong, Pressroom Group founders, Allan Lo (28), Paulo Pong (31) and Arnold Wong (33), these folks with elite education background are known for their hit restaurants at the hottest estate in the city. From fine dining to Sunday brunch, this group of young entrepreneurs aims to satisfy every of your taste buds.

Apart from the fact they are all self-made men, what they all have in common is that their companies are always under constant revaluation, either for public interest or fund raising reasons.

Hong Kong has a vibrant scene for angel funding and venture capital, entrepreneurs could capitalize on the advantage edge of cash reserve with a seeming ease. However, an ideal fundraising scenario is based on a proper evaluation on the existing business.

Taking Groupon as a grand example, having the buzz and the bucks, rated as the fastest growing company among the new web-phenom companies by Forbes Magazine, was only launched as a side project to the previously failing company under the financial crisis.

However, No matter how fast the business is growing or how unstoppable the force is. There will always be a point in time, when the question must be raised: How much is it worth?

Unlike capital intensive companies, assessing value of a company with a unique business model would not be as easy as going into their books. Especially for a financial hub like Hong Kong, remotely diverting investment to all kinds, valuation under such complicated sitation involves multiple steps and combination of tactics, more importantly it will be a translation of what their business truly is.

The following are some of the angles to approach an assessment of a unique business in Hong Kong:

The Network Effect: Network externality is the rule of thumb in the internaut community. In fact, the concept of network extends to all business and which to be built upon. Intricate link within the network is the mastermind behind any company.

Valuating a company from the angle of the network meaning an analysis of both social and technical perspectives of the company. Prestigious network with key parties will boost the value of the brand substantially.

Customer Loyalty: It is safe to say customer loyalty is the most critical consideration to the profitability of company of any size and nature. It is also the translation of the quality of your service/product and users’ satisfaction which directly reflects on the bottom line. Company’s customer loyalty is also the preferred method on list of approaches when valuing a unique start-up company, because the accuracy it could provide for a customer driven company.

Resources: Intelligence capital, where the most value lays in a start-up web-phenom company. Sometimes, couple programming folks are the major capital you have in early era.

Taking the approach to evaluate intelligence resources as the major source of value to the company would be more appropriate, as the company has little capital or mature product/ service at the stage.

Analytical: No stranger to entrepreneurs, elements in the analytical approach are no magic beyond the school of entrepreneurship, yet the composition of basis abstract from the fundamentals of the business needs to be carefully investigated.

Evaluating a company from this particular angle will be a compound of characteristics of the company, combining country’s economy, industry data, barrier to entry, buyer’s power, supplier’s power, threat of substitutes and competitive rivalry.

“Forecast+”: Aggregation of the estimated present value of all expected income generated by the company in the future. Focusing primarily on income, this angle is more commonly adopted by capital-intensive companies with widespread avenues of cash flow. The estimation and assumptions made are based on forecast and market trend.

However, the accuracy of valuation heavily depends on the market outlook and index presumed by valuation expert.

Valuating a company is a process of understanding the business meticulously and thoroughly, it is eventually an opinion based on concrete fact and chronicle of events.

More importantly than others, evaluation is the task to accomplish for a company just stepping out of incubation. Knowing the net worth of your company could serve as a strategic tool to company’s future development and expansion plan.