Tag: startup valuation methods

What caused Klarna’s valuation to drop from $45 billion to $15 billion

Klarna, a European buy-now-pay-later (BNPL) service provider, is raising investments at a valuation of $15 billion. There was a dramatic decline in their mid-2021 $45 billion valuations and the estimated 2022 $30 billion figure. In recent quarters, not just Klarna, many fintech companies have fallen sharply.

Klarna is the second-largest BNPL service provider. It allows interest-free finance to consumers. These services have gained popularity, especially after the COVID-19 pandemic.

The latest investments in Klarna were led by SoftBank’s Vision Fund 2. They cement its status as one of the finest fintech startups by valuation. However, this market is deteriorating at a rapid rate and the best-known private fintech company is caught in the mix. Here’s why Klarna’s valuation dropped from $45 billion to $15 billion in 2022.

What is Klarna?
Klarna Valuation to Drop From $45 Billion to $15 Billion
Why Is Klarna’s Valuation Declining?
The Situation of Klarna in 2022
Investments & Backers of Klarna in 2022

What is Klarna?

Klarna is a Sweden-based fintech company. It was established in 2005 in Stockholm. Niklas Adalberth, Sebastian Siemiatkowskiand Victor Jacobsson are the co-founders. Their sole purpose is to make online shopping effortless for consumers.

Klarna, also known as Klarna Bank AB, offers numerous online financial services. These include direct payments, online storefronts or BNPL services. Since 2005, Klarna has been on a mission to make payment as simple, safe, and smooth as possible.

After serving the world for over 17 years, Klarna is now the world’s leading global payments and shopping service. Today, it holds almost 147 million users with more than 400,000 merchants across 45 different countries.

Klarna Valuation to Drop From $45 Billion to $15 Billion

The Swedish fintech company is seeking to raise funds at almost three times less valuation. Last time the company closed the round at a valuation of $46 billion with SoftBank, becoming the world’s second valued startup. However, on Friday Wall Street Journal reported that the valuation shrank to $15 billion while raising $500 million from investors. The journal reported that last month Klarna had pitched a proposal of $30 billion to the investors, which now closed at $15 billion.

Valuation History of Klarna

Why Is Klarna’s Valuation Declining?

Last month, the Journal reported that Klarna’s CEO Sebastian Siemiatkowski made public the company’s situation. Citing market constraints, he announced that the company was laying off 10% of its international workforce.

Through a pre-recorded video message, he said, “We are strongly influenced by the outside world. When we set our goals for 2022 in the autumn, it was a very different world than the one we have today. What we are seeing now in the world is not temporary or short-lived, and hence we need to act.”

In the same week, Sifted reported that the company’s pre-tax losses have tripled to $250 million in the first three months. BNPL startups, such as Klarna, survive a low-interest-rate environment. Merchant fees and late payment charges bring enough revenue but the margins have been narrowing, as of now.

The company’s CEO also spoke about how users are gravitating towards debit and rejecting interest-and-fee-laden credit. He said, “Consumers continue to reject interest-and fee-laden revolving credit and are moving toward debit while simultaneously seeking retail experiences that better meet their needs,”

“More transparent and convenient alternatives align with evolving global consumer preferences and drive worldwide growth,” he added.

The Situation of Klarna in 2022

Starting in 2022, when Klarna submitted its first-quarter report, it was noted that 10% of the staff were terminated. However, speaking over the report, the company said that “still seeing strong growth across the business”, it was “time to consolidate and capitalize on strong foundations”.

Now, looking at the huge financial loss, it seemed that this was the reason why the company decided to cut costs.

As per the report, Klarna’s last fundraise was way lower than the previously raised value. They planned to raise a total of 1 billion dollars with a valuation of 30 billion dollars. However, the board conference didn’t go well and they had to adjust with a valuation of 15 billion dollars.

Thereby in an attempt to cover the losses, Klarna’s CEO in early June declared that it would terminate its global employees. As a result, approximately 700 employees would lose their jobs.

Investments & Backers of Klarna in 2022

Swedish battery maker Northvolt raised $2.75 billion in a round valuing the company at $11.75 billion. According to Pitchbook, 2021 set a record for European tech startups raising $52B. As of June 22, European startups have already raised $45 billion.

“The international money is coming into Europe,” Hans Otterling, general partner at Northzone and an early investor in Klarna, told CNBC. “For Silicon Valley, the talent pool has been depleting for some time. We have a huge talent pool in Europe.” Klarna’s other backers include the likes of Chinese fintech giant Ant Group and U.S. rappers Snoop Dogg and ASAP Rocky.

Last month, Klarna was hit with a data breach. Consumers reported that they were being logged into others’ accounts. This caused the company to officially shut down their app.

They addressed the issue later through a blog post. They stated the bug was caused by “human error” and that it had “informed appropriate authorities.” However, this affected more than 9500 Klarna consumers.

Almost 73% of all e-commerce exchange transactions drove through Klarna. Due to the everlasting customer acquisition, the company claims to hold a valuation of a total of $45.6 billion in 2021. It is seconded by investors across the world. Some of them are Silver Lake, Dragoneer, Permira, Atomico, Sequoia Capital, Ant Group, Bestseller Group and Visa.

FAQs

What is the valuation of Klarna?

The valuation of Klarna is $45.6 billion but is predicted to drop down to $15 billion.

Who founded Klarna?

Sebastian Siemiatkowski and Niklas Adalberth founded Klarna in 2005.

What is the revenue of Klarna?

The revenue of Klarna was $1.42 billion as of 2021.

June 24, 2022
What Does a Non-tech Person Need to Know Before Buying a SaaS Startup?
Technologies have changed dramatically. It has become a lot easier for small businesses to generate revenue online. As you may know, many startups are trying to make it big in the industry. But buyers need to be careful about which platform they invest in. Some people aren’t tech-savvy but want to own a SaaS startup. If that’s you and you don’t know how to choose the right one, then you can use some tips to find a reliable startup. This will keep disappointment to a minimum and save you time when screening and vetting SaaS startups before making an offer.

Things to Know Before Buying a SaaS Startup
How to Buy a SaaS Startup?

Know what you’re getting into (purchasing a product or a company)

Global SaaS Market Worth

When buying a SaaS startup, it’s important to understand whether you’re buying a product or a company—and how those two things differ in terms of risk and rewards. If your goal is to sell your product as quickly as possible, then buying an established company with paying customers and recurring revenue might be more appealing than starting from scratch with an untested idea. However, if you want to buy into someone else’s vision and grow with them over time—or if you want to change direction quickly based on market conditions—then building something from scratch might be better suited for your needs.

How is the product built?

The SaaS startup you’re looking at has a great team. But how do they build their product? If they’re using a proprietary software platform, that’s great. If they’re building their in-house software, that’s even better! It means they do not depend on third parties to keep their business running.

If they’ve built their product using open source tools or frameworks, that’s fine too, but make sure you understand what it means for them to have done so.

Are there any dependencies on third-party services or software licenses?

If you’re buying a SaaS startup, it’s not enough to just look at their revenue numbers. You also need to know if they’re making money and how much they spend on it.

Are there any dependencies on third-party services or software licenses? For example, buying a SaaS business that relies heavily on Amazon Web Services (AWS) might seem like a great deal on paper, but you might be surprised by how much it costs to maintain the infrastructure in the long run.

Have they built their technology, or did they buy existing solutions?

This is another important question because it can tell you if your new startup has already invested in building its technology stack, which means it may have already started paying off dividends.

How does the product work?

SaaS Product Working

SaaS businesses have many moving parts, so it can be hard to understand what’s going on from the outside. It does not take an expert in software development to know how your SaaS company works—you just need a basic understanding of what makes it tick.

Before buying a SaaS product, the first thing to understand is how the product works—and whether it’s working. You should know what the company has done with its resources in the past.

Learn how to value a SaaS business

You may have a hard time figuring out what a SaaS business is worth if you’re not a tech person. You’re probably wondering how to value a SaaS startup or how to know if the numbers are genuine.

It’s easy! Just ask yourself:
- How much money has a startup made in its lifetime?
- How much money can it make in the future?
- What are the costs of running the business?
Understand their business model

What is it that they do? Do they charge per user? Do they sell subscriptions? Is it based on the number of transactions or the amount of data stored? These are all important questions to ask because they will inform how long your investment will last and how much money you can expect to make from it.

Next, take a look at their competitors. Who are they competing against? Are they trying to compete with big players like Google or Microsoft? Or do they have an opportunity to carve out their niche where they won’t be competing directly with anyone else? Taking this into account, you will know exactly how much room there is for growth and expansion within that particular space.

Plan for a lot of work ahead

Once you’ve found the right SaaS startup, you’ll need to plan for a lot of work ahead. You might have to hire new staff or train your current employees to use the product, which can be costly. Also, consider the time it will take to train your customers on how to use the product—this can be even more time-consuming than training your staff!

Make sure the product is fit for its purpose

What does this mean? It means that you need to ensure that your SaaS startup will be able to deliver what you need it to and that it will not have any issues along the way. You also need to ensure that your SaaS startup will be able to keep up with demand and won’t have any issues scaling up when necessary.

Be prepared to develop a marketing strategy

When buying a SaaS startup, you need to be prepared to develop a marketing strategy.

Your first step is to understand how your target customer uses the product. What are their pain points? How do they currently solve them? What do they want to see improved? Then you can start developing your marketing plan around those goals.

As a non-tech person, you may not know about SEO or SEM yet—but that’s okay! You can still have a say in what the marketing looks like and what channels are used for outreach.

Don’t assume that the numbers are true

One of the biggest mistakes that people new to SaaS make is assuming they can trust the financials provided by the company they’re buying. Most SaaS startups are private companies, so there’s no way for outsiders to verify those numbers—and even if there were an outside auditor, those auditors might not have experience with this type of business model, so they wouldn’t be able to tell if everything was on the up-and-up anyway!

Talk to at least three existing customers

Before investing in a SaaS startup, we recommend talking with at least three existing customers. When you do this, make sure they are people who are using the product in real life and not just company employees or investors—that way, you’ll get a more accurate picture of what using the product is really like.

Inquire about their experiences with the product & company and what they like/dislike about it. Also, ask them what they would change about it if they could (though remember: this doesn’t necessarily mean that the startup will change their product based on your feedback).

If any features are missing from the product that they think would be useful, ask them how important those features are to them personally—not just in terms of how often they use them but also how much value they would add to their business if added to the product overall.

Inspect their revenue

Indian SaaS Industry Expected Growth till 2026

Revenue is the most important thing to look for. Revenue is the biggest indicator of how well a SaaS startup is doing. If you’re buying it, you want to ensure that it’s making money and has been making money in the past. If it hasn’t been making money, it might be time to move on from that company.

Look for revenue growth and revenue stability

What does this mean? It means you want to see if the company has consistently made money for the past few years. If they’ve been doing well over the past 4 or 5 years, that’s great! But if not, ask yourself why.

You want to see steady growth over time—preferably, that growth has been accelerating. In addition to growth, you also want to see that the company is making money. The goal is not just to grow as fast as possible; it’s also to make sure that the business model works and can be sustained long-term.

Conclusion

Buyers, beware, SaaS startups can be complicated to evaluate and run.

Frankly, there is a lot to look into when you’re looking at buying a SaaS startup. There are products to demo, contracts to review and establish, and many other details that probably won’t occur unless you’ve worked with SaaS products before. But if you want a great return on your investment, you need to be aware of all these factors (and more) before buying into a SaaS startup.

FAQs

Why do startups acquire other startups?

Acquiring a startup helps in getting more market share in startup the companies are dealing in.

How to value a SAAS startup?

Saas startup is valued based on these values:
- Annual Recurring Revenue
- Growth Rate
- Net Revenue Retention
- Gross Margin
Can a non-technical person be a founder of a company?

Yes, there are many successful startups that were built by non-technical founders.

Is there any marketplace to buy SAAS Startups?

Marketplace to check for buying SAAS startups are:
- FE International
- Quiet Light Brokerage
- MicroAcquire
June 2, 2022
How to Calculate Valuation of Your Startup?
In the competitive entrepreneurship world today, entrepreneurs are quite excited about adding value to their startups. It is one of the most essential things to do for founders as it helps in further equity and funding decisions. Quantifying the worth of a startup is the most complex task to do. There are several methodologies and approaches to determine the valuation of your startup. The worth of a startup depends on several factors:
- The business idea of the Startup
- Stage of the startup
- Product Prototype
- Market risks and competition
- Technical Adaptability
- Customer traction
- Investors
Let’s know about the approaches used by startup founders and entrepreneurs on how to calculate the valuation of your startup.

Mehul Sharma – Founder & CEO, Signum Hotels & Resorts

Mehul Sharma – Founder & CEO, Signum Hotels & Resorts

Pre-revenue start-up valuation may be a complicated endeavour. There are many factors to take into consideration, from the control group and marketplace traits to the call for the product and the advertising dangers involved. And a hard truth associated is that even after comparing everything, despite the only pre-revenue valuation formula, the first level you may get continues to be simply an ESTIMATE!

The world of the start-up is a place full of enthusiasts. A start-up is initiated every 3 seconds around the world! Every big company you can think of started from a garage with a computer bought with savings money or some sort of gift. But not all start-ups share the same start.

Business proprietors will wish for an excessive valuation, while pre-revenue investors might opt for a lower price that guarantees a larger go back on investment (ROI).

So, how does pre-revenue start-up valuation evaluate with a mature commercial enterprise valuation?

Unlike early-stage start-ups, a mature publicly-indexed commercial enterprise will have extra information and figures to head on. Regular circulation of sales and monetary statistics make it less difficult to calculate the price of the commercial enterprise. More often than not, early-stage startups are valued somewhere within the middle, which means founders don’t get quite the amount they anticipated, and investors pay higher than what they intended to invest.

For most start-ups especially pre-revenue, Traction is one of the significant indicators for assessing the worth. The true story of a start-up can be brought into the daylight by taking a look at its effectiveness in the market, the number of users, and its growth rate.

Estimating the actual worth of an unlisted startup before the seed funding is actually of equal importance to having a business idea while going in.

There are various ways to estimate the current worth of a business, but only a few are used as a daily pill by entrepreneurs.

The most basic method to assess the value is by analyzing the previous year’s Balance sheet. Under this method, the total debt and liabilities are subtracted from the aggregate value of assets owned by the business. This method is less complicated, easy to assess, and comes in handy.

Although, the Balance sheet method does not provide the whole picture of the situation. The problem here is that this methodology considers the start-up in its current state and not how it’ll be in the future. Investors are inquisitive about the latter, and so, as an asset-based valuation doesn’t take that into account, this method has its drawbacks.

Another method of assessing the valuation of a business is by calculating the EPS (Earnings Per Share). EPS is calculated by subtracting the Preferred dividends from the Net income and further dividing it by the average of outstanding common shares. For an individual investor, EPS shows the exact value of revenues and makes more sense.

The valuation of a start-up is a complex task and there is no straight jacket solution or method to be put into use each time. Often, the valuation is calculated using a combination of ratios, and ordinal values.

The angel capitalist Dave Berkus believes investors ought to be ready to envision the corporate breaking of $20M in 5 years. His technique assesses five important aspects of a start-up, namely, Concept, Prototype, Quality Management, Connections, and Launch plan. The Berkus technique is an easy estimation, typically used for IT start-ups. It is a good way to gauge value, however, because the market into account isn’t taken into account, it’s not going to provide the scope that some folks desire.

Furthermore, a few more methods like EDITBA (Earnings before interest, taxes, depreciation, and amortization), top-line method, and GMV (Gross Merchandise Value) have been proven to provide significance for the estimations.

EDITBA is another easy-to-use method that provides ordinal values by using the previous financial statements. Varied business segments face varied rates of tax payment based on the industry they fall into. A business with a higher revenue may have an NPV (Net Present Value) lower than the one with lesser revenues due to the different industries they fall into.

Another interesting method for assessing the value is the Top Line method, which is a reference to gross figures reported by a company, such as sales or revenue. This method gets the name because these are shown at the top of a company’s income statement and are kept aside for the reporting of revenue and or gross sales.

GMV method ascertains the gross value of sales in the market. Under this, the gross value of the merchandise is calculated as the Sales price of goods with the number of goods sold. It shall be noticed that GMV is calculated in conjunction with net sales, which takes deductions into account.

The first-time valuation of a start-up is bound to foresee at least a few mistakes. Hence, while evaluating the value of your start-up two big pitfalls one shall avoid are:

1. Never assume a valuation is Permanent, i.e., after all, a startup is going to be valued at what investors are willing to speculate in it. Ultimately, it shall be kept in mind that the variables are at play, and perceive that no valuation, high or low, is ever permanent- or maybe even correct with certainty.

2. A Valuation is never straightforward, i.e., even after getting a pre-revenue start-up valuation you’re happy with, it’s best to debate things in nice detail with potential investors simply to ascertain that everyone is on the same page regarding the way to proceed.

It is rightly said that only a fool would make peace with the first valuation he gets of his business as there are complexities and human factors involved.

List Of Government Schemes for Startups in India

The Indian government is doing a lot to encourage and promote entrepreneurship. This StartupTalky post discusses some of the schemes launched to support Indian startups.

StartupTalkyAshwini

Vicky Jain – Founder, uKnowva

Vicky Jain – Founder, uKnowva

Startup valuation is not an exact science. Factors can include the industry, the present market, the team’s credentials, and other forces that might be taken into account. The valuation of a start-up is the measure of how much investors think the company is worth right now. One of the simplest ways to measure the value of a startup is with the scorecard method. By weighing up parameters of success like team experience, competition, the strength of the product, etc.) subjectively, this method enables comparisons between a startup and other “average” startups within the industry and area. If the startup looks to have more than average qualities as per the calculations, then the chances of getting a higher valuation increases and so does the investment opportunity. There is another method known as the discounted cash flow method that approximates how much flow of cash a startup will produce over a long period of the term. By predicting this and calculating the expected return on the rate of investment, assumptions can be made about a start-up’s value.

Sharan Goyal – Founder and Director, Crozzo

Sharan Goyal – Founder and Director, Crozzo

Valuation in today’s day and age has taken a very sinister meaning. Valuations are through the roof, with no stopping in sight. I prefer to find a reasonable multiple of EBITDA or revenue (in the case of a cash flow negative company) and compare that to that of an existing business which has raised funds at a particular multiple. For example, a D2C business in the food space with a solid distribution network is often valued at 15-20 times forward revenue. It would be fair to assume that a company with a similar profile can be valued at a similar multiple.
May 27, 2022

What Is Startup Valuation? Methods Of Startup Valuation

Startup valuation is both art and science combined. The gut, instinct, and gut instincts are usually involved. Well established companies are easier to value because you can throw their revenue in a spreadsheet and work its magic. They have numbers. A startup in its initial state lacks solid numbers. Only forecasted values are available, and those are just an estimation.

Why is valuing a startup necessary, you might ask. Valuing helps an investor decide if the startup is worth investing in. And why are startups valued so high? Showing a high and solid valuation attracts investors like bees to honey. The valuation also helps entrepreneurs in determining how much of a share to give to investors in exchange for their money.

But having a high valuation at the start is not compulsory. It just means that a high valuation at the seed round implies higher valuation in the next round. For that, you will need to show considerable growth. A general metric is showing 10x growth over eighteen months. There are two strategies regarding valuations:

Go big or go home – Raise a large amount at the highest valuation and grow as fast as possible. If successful, the seed round will fund itself. And the dilution rate is less as compared to a slow-growing startup.
Slow and steady – This involves a steady growth rate where you raise only as much as you need and spend as little as possible.

Factors That Impact Startup Valuation

Industry

If the industry is booming, investors are more likely to sink money into your venture.

Customer base

Showing that your company has customers is a surefire way of showing high valuation.

Reputation

If the owner has a stellar record of running businesses or the product/service is a successful one, investors are more likely to get attracted even if the business lacks a customer base.

Supply & Demand

If the demand is high, a high valuation can be placed. If the supply is higher than demand, investors might be less willing to invest a large amount.

Product

Lack of need for the product or if the product is not of good value, the valuation of the business is lowered.

Competition

The business will find it difficult to carve a niche for itself if there is no scope left, i.e if there is heavy competition.

Management

Sometimes, an outstanding team is enough to inspire confidence in an investor. Lacking that can make things go downhill.

Pre-evaluation revenues

This depends on whether you already have a commercial product/service in hand and if it is generating any revenue. An existing revenue is a positive cause for convincing an investor.

Methods of Valuation of Startups

Cost-To-Duplicate

In this method, the hard assets are taken into account and the cost of duplicating the same business elsewhere is estimated. Unfortunately, this method does not take into consideration the growth potential and intangible assets such as brand value, industry trends, or reputation. This method gives us the ‘lowball’ estimate of the venture.

Discounted Cash Flow

This method determines the cash flows generated in the future and sets and applies a discount rate to the value to arrive at the probable valuation. The cash flow determination depends on market fluctuations and the ability of the analyst to make good assumptions. The discount rate is proportional to the risk factor.

What is Startup Valuation — Discounted Cash Flow

Berkus Method

This is the most popular method in use. It is used for the valuation of pre-revenue startups. This is how it works :

If It Exists	Add Company Value Upto
A Sound idea	$ 0.5 million
Prototype or working model	$ 0.5 million
Quality management team/ Reputed leader	$ 0.5 million
Strategic relationships/ Partnerships with industry	$ 0.5 million
Product rollout or sales (initial revenue)	$ 0.5 million

Comparables/Multiples Method

This method works on the principle ‘one price for all’, meaning similar companies are worth the same. Essentially, similar startups are compared. It uses industry ratios such as price-to-earnings ratio, price-to-sales ratio, values-to-earning before interest, etc., It also takes factors that are not similar for both companies into account.

Image Source: CFI

One disadvantage of this method is that there is a slim chance of finding similar startups as business ideas tend to be unique.

Scorecard Valuation Method

The average pre-money valuation of all startup businesses in the area is determined. The startup in question is valued against them on the basis of a scorecard. The Scorecard consists of the following factors and their weightage.

Risk Factor Summation Method

This method uses the same average pre-money valuation method and compares twelve elements of a target startup to a funded and profitable startup. The elements are as follows:

Management
Stage of the business
Legislation/Political risk
Manufacturing risk
Sales and marketing risk
Funding/capital raising risk
Competition risk
Technology risk
Litigation risk
International risk
Reputation risk
Potential lucrative exit

Each parameter is awarded a value ranging from +2 to -2, with +2 being a positive valuation of the company for that parameter and -2 being negative.

Valuation By Stage Method

This method is similar to the Berkus method but treats the parameters in the latter as subsequent stages. Generally, the stages appear to be:

‘An exciting business plan’ -may warrant around half a million
‘A strong management team’ – may warrant one million
‘Availability of prototype or finished product’- may warrant around 1-2 million
‘Partnerships or steady customer base’- may warrant around 2-5 million
‘Shows signs of growth and profitability’- may warrant greater than 5 million

The amount is the valuation of the company and gives an idea of how much an investor might be willing to invest in your startup.

Venture Capital Method

Professor Bill Sahlman of Harvard business school introduced this method. The following formulae are used:

Return on Investment (ROI) = Terminal (or Harvest) Value ÷ Post-money Valuation
Post-money Valuation = Terminal Value ÷ Anticipated ROI

This method is meant for pre- as well as post-revenue startups.

First Chicago Method

This method is a very qualitative way of determining the state of the startup. Three different evaluations are given based on the best-case scenario, the worst-case scenario, and the normal scenario.

Book Value Method

This method is used when the startup faces a loss and is going out of business. The valuation is done considering only the tangible assets of the company. Growth, revenue, branding, etc., do not matter.

Any method on its own is not sufficient to get a correct estimate. The best approach would be to evaluate the startup using multiple methods. Those methods on average will give us an approximately accurate guesstimate. Not to mention some methods are merely qualitative. Valuations are handy when you turn to fundraising.

There is no hard and fast rule when it comes to scoring funding. Sometimes, the person, the brand, or the team might convince the investor rather than the calculated numbers. It is a matter of skillful negotiation and instilling faith in the investor that your company deserves the funding.

August 13, 2020

Tag: startup valuation methods

What caused Klarna’s valuation to drop from $45 billion to $15 billion

What is Klarna?

Klarna Valuation to Drop From $45 Billion to $15 Billion

Why Is Klarna’s Valuation Declining?

The Situation of Klarna in 2022

Investments & Backers of Klarna in 2022

FAQs

What is the valuation of Klarna?

Who founded Klarna?

What is the revenue of Klarna?

What Does a Non-tech Person Need to Know Before Buying a SaaS Startup?

Things to Know Before Buying a SaaS Startup

Know what you’re getting into (purchasing a product or a company)

How is the product built?

Are there any dependencies on third-party services or software licenses?

How does the product work?

Learn how to value a SaaS business

Understand their business model

Plan for a lot of work ahead

Make sure the product is fit for its purpose

Be prepared to develop a marketing strategy

Don’t assume that the numbers are true

Talk to at least three existing customers

Inspect their revenue

Look for revenue growth and revenue stability

Conclusion