Tunnel vision is rarely a good thing – unless you are digging a tunnel, of course. When it comes to investing in startups, packaging your company in hopes of raising funds, or even looking for financial opportunities to present to your clients, tunnel vision can do more harm than good. The point is easily illustrated with the valuation analysis report.
The valuation analysis report is just one tool among many in the due diligence toolbox. And yet, how many investors and entrepreneurs obsess over it? They look at company valuation as the be-all and end-all of investment decisions. But valuation reports do not tell the whole story. They don’t present the entire picture.
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More Than Just Money
Utah-based Mezy sees the valuation analysis report as being more about money than anything else. That makes it a very valuable report. It can tell investors and financial advisors just how much a company is worth at any given time. It can provide important financial insight necessary to make sound decisions.
But wait. Money and financials are not everything. What if the target company is being run by a management team with little or no experience in the field in which they are engaged? Their early-stage excess may be a matter of dumb luck. It could be that another company or organization set the stage for their success but, left on their own, they don’t have what it takes to succeed.
Smart inventors and financial advisors know that there’s more to it than money. They look at management teams, history, experience, and reputation. They also look at things like market size and share. There is so much more that isn’t covered by a standard valuation.
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You Wouldn’t Buy a House That Way
Perhaps you are an investor or financial advisor looking at new opportunities. Before you obsess over yet another valuation analysis report, step back and think about what you are doing. If it helps, compare the way you invest with the way you would buy a new home.
Would you obsess over list price and property tax rates to the expense of everything else? Would you ignore neighborhood crime and amenities, property condition, and even your own personal comfort just because price and tax numbers were in the ballpark? Of course not!
List price and tax rates are to home buying what the valuation analysis report is to investing. They offer a good starting point from which you can filter out properties you definitely have no interest in buying. Likewise, valuation reports give you a starting point for considering new investments.
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Look at the Big Picture
Mezy has a habit of recommending that their clients look at the big picture. That picture has plenty of details worthy of consideration. As a diligence-as-a-service (DaaS) provider, Mezy produces all kinds of reports to reveal the necessary details. But here’s the thing: each and every report deserves the same amount of attention.
By all means pay attention to valuation whenever you look for new investment opportunities. Give plenty of weight to the valuation reports you are given. But don’t obsess over those reports at the expense of other data. Despite the valuable information they contain, they don’t tell you everything about your targets.
Make sure you are looking at each and every factor that could influence your future with a particular opportunity. If your due diligence raises any red flags, either walk away or at least slow down and do more research. Whatever you do, don’t look at a valuation report’s bottom line and make a decision based solely on it. There is too much at stake.
