Fundraising · Angel investing

How do you determine a valuation on an app startup before launch for a F&F/angel round?

Nik White Founder/VP of Everything at TalentMob

August 21st, 2016

I'm in the build stage and beginning to run out of money, so am looking for F&F/angel investors to finish the MVP. But there's no users yet, as there's no finished product. So I'm struggling to figure out how to determine its worth to my potential investors. 

Michael Feder Founder and CEO at PrayerSpark; Finalist: Global Business & Interfaith Peace Award

August 21st, 2016

Valuation is not relevant. Use Convertible Note. Plenty on this on the internet. Your investors will get the valuation at the official seed or A, with a discount. It will be very very hard to find investors for an app with no MVP and no customers, but, who knows... 28 food delivery companies, all doing essentially the same thing, have all found funding, so there is a lid for every pot ;-)

Joe PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

August 21st, 2016

Early-stage entrepreneurs tend to think about equity financing too early. I have a blog post with some thoughts you might find useful at  http://www.logika-usa.com/the-startup-guide-to-equitable-equity/. 

In summary: Convertible note or Y-Combinators SAFE note if you want to keep things a bit cleaner for future rounds. 

Rod Abbamonte Co Founder at STARTREK / @startupHunter / @startupWay / @CoFounderFound / @GOcapital / @startupClub / @lastminute

August 22nd, 2016

Valuation in different stages not just early stage is a key point that inspire many debates and discussion. I personally understand that an idea have no value until be proved. It's a kind of lottery. Still in early stage but after MVP validation we have many difficulties to determine a valuation but I suggest separate in three point of view. One is from the founders point of view in which they specify how much they invested until that moment and from that they can calculate an approximate value. The second is the account point of view that can use for example discounted cash flow. The third is the value determined of who is investing. The combination of these three can give any idea of valuation. In any case for the real early stage the better to do it is us a convertible note.

Joseph Wang Chief Science Officer at Bitquant Research Laboratories

August 24th, 2016

Convertible notes are the standard way of deferring valuation until later.

The big problem is that to be completely honest, your valuation right now is zero.  You have no product, you have no customers, you have no cash flow.  If everyone walks away now, no money changes hands. 

At that point you are selling lottery tickets that may be worth something someday, and convertible notes delays the valuation until it's something greater than zero.

Also rather than trying to figure out the worth to an investor, you need to figure out how much cash you need to get to the next stage.  Once you have that number then you beg or borrow that money.  If you get the money from friends and family or by mortgaging your house, you are essentially cashing in goodwill and accrued savings to finance your company.

Nik White Founder/VP of Everything at TalentMob

August 21st, 2016

After a quick google search, there's lots of info out there on this topic. But would be interested if anybody has any other ideas/suggestions that's not exactly mainstream.

Peter Kestenbaum Advisor, Investor, Mentor to Emerging firms

August 21st, 2016

A convertible note is a common approach to this. Angels typically will skip a convertible round but it really is the best vehicle for friends and family. I have a series of power points on the big points if you want to email me privately.

Robert Lasky Digital Executive, Consultant and Cross-Industry Channel Expert

August 21st, 2016

Peter's right. Convertible note is the way to go because it let's you "punt" on trying to figure out valuation when it's premature.

David Austin

August 21st, 2016

I strongly recommend some of the advice on customer interviews by Justin Wilcox at customerdevlabs.com.  You can often get enough data that way to get a rough pre-emptive valuation enough to at least know the numbers you need and should expect to negotiate with.  You also might want to rethink the depth and/or breadth of your MVP.  Sometimes a mere interface with very minor functionality combined with a release schedule for so much more will be enough to qualify for many investors as a qualified MVP ... and then you can get the financing to move forward with something built right from the ground up.

Malick Mohamed PMP

August 22nd, 2016

Though a lot of investments follow through vigorous screening, interviewing process, it is difficult (at least for me if not for others) to come to a conclusion logic about all investments.
It should be difficult to judge a mobile app's customer success without seeing any initial adaptation.
I find Michael Federer's reply correct in these respects.

Tom Duffy

August 22nd, 2016

the most important thing to find out is if your solution is something that is subscribable ,buyable and scalable one way to find out is to do a crowdfunding campaign with professional content and 40 bloggers to get the word out . we have done them for our clients when they come on board but we can do it for for you for less then 2000$