Valuation

The next move… Are there many options in valuation when you are at the idea stage?

Anonymous

May 15th, 2017

I have looked at my business from every angle that I can understand. I am still considered to be in the idea stage, yet I really know the market and the potential. I vetted the idea with several clients who are eager for me to get started.

There is no doubt that this industry is about to change. On the day we go online, my largest competitors stand to lose billions. It doesn’t matter if I fail because others will follow and eventually succeed. It’s a fact. It’s not competition. Its replacement.

If I succeed it will be unicorn in scale. If I don’t their losses will continue anyway.

To succeed I need the help of a potential partner. And that is where the issue lies. I can assure any investor that they will get the return they want. During due diligence, they will know it too. But the partners return depends on the rate of scale. If I am too slow or make too many mistakes the partner’s business may not get enough in return. Slow is bad. Even with their patents.

In the idea stage, all partnerships and investments are slow or sporadic. You just can’t count on them. From the partners view I get hesitation. Even if equity is involved.

I decided that the best move is to leverage the partner’s capability (with their support) to show we can execute. We will present the business for sale to one of the competitors before we start.

The only way I can define a current value is to break the business into parts and show the typical valuation after initial investment or the average cost to start each component. There are 2 in my business and 1 in the partners. If I use the average value after an incubator the value floats to an unrealistic number. If I use the cost of the average investment, which appears to be $3.3million my estimate is then $6-7 million for my business. I would consider that reasonable with some residual equity.

Should I present this solution to the partner who will no doubt ask for a large percentage? Are there better options? Are there valuation methods that apply?


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Konstantin Dimitrov Experienced engineer and visionary with recognised portfolio

May 15th, 2017

I think you should be fully open to your partners. After all these are the people who will stand next to you and support your business. If they have doubts, then look for different partners. Passing through the idea stage in extremely difficult (I am in the same boat right now). Finding someone who will believe in the idea even without it being made, that is a very difficult thing. It is up to you to come up with the calculations for percentages, but even if you have to eventually give away a large chunk of your business so it can start, that is still better than having it all but worth nothing.

Arthur Lipper Chairman of British Far East Holdings Ltd.

May 15th, 2017

Were you to sell a royalty entitling the investor to received an agreed percentage of revenues if, as and when commencing, there would not need to be any discussion of valuation as the investor would receive some of the apples if produced but none of the tree.

chrisban35

May 15th, 2017

While watching the Shark Tank, I took away a great understanding of one thing, when the person focuses more on the greed of his take and not the aspirations/passions of his creation every single shark turned from this person. It creates a form of toxicity that no matter how good the product/service it will fail.


You may have something that will corner a market and it may indeed double an initial investment in a short period of time, but I'd spend more time going back to the drawing board and re-writing my presentation so that it did not give a takeaway of greed, but instead a genuine fairness to it's success.


That may seem "harsh" at first, but, it's the medicine you need so that you can fully understand why there has been no one to offer their help or guidance. As the cliche says "pretty words aren't always true, and true words aren't always pretty".....


So to echo the other comment here, you should be fully open and invested with your partner. Have you ever stopped to think, while you are strategizing what information to tell him, and not tell him, it is this incomplete picture which is causing his hesitation/longer process to pull the trigger and or to fully invest the additional amount so that you can go big instead of small.....


Look up Johari Window, that's all I'll say. Remember, we must understand the 4 sides of any interaction or we're doing a disservice to ourselves as well as others...