We are a data and mobile app start-up based in the UK. We were in touch with a large brand initially about partnership but now they have said they would like to acquire us. However they want us to come up with business valuation. Our business is only a year old with small amount of traction, but strategically important to their business. They are the only bidders right now. How should we approach the negotiation and/or the initial valuation?
I have dealt with this before. I recommend finding out how much the acquirer pays to acquire customers, users or accounts today. CPCA- cost per customer acquired
Also ascertain how much a client, user or account is worth to them. LTV - long term value
From these metrics you can put some value to what you have. Then trend that out over 3-5 yr period.
The key is to make the buyer part of the valuation. Don't go off and do this and come back with a value. They need to be a part of it for your valuation to be accepted. There are no absolutes in this.
From my back of a napkin calculations that is what Facebook did to buy Instagram.
