It is a disruptive and niche startup with an initial market of 4.5M. Scalable vertically and horizontally. Top category, such as food and technology. But without traction.
Ugh. Investors.
Here's the harsh or maybe happy truth.
If your Startup offering (product, service, information, courseware, consulting, etc) provides stellar value, then you require no investment.
Do your launch + if money starts pouring in, either skip the investors of if you really must use investors (doubtful, if you're providing stellar value), then the more revenue you have, the better terms you'll get from investors.
That will be absolutely subjective.
You are going to be dealing with angel investors at this stage, so valuation will be highly dependent on how personally interested is the potential investor on what you are doing and how crazy are your expectations about what you are doing.
I say crazy, not in a pejorative way, but realistically most entrepreneurs tend to underestimate the challenges ahead of them and overestimate the potential for growth of what they are building (at least in the short/mid term).
If you are able to find an angel investor who is extremely excited for the field in which your startup will operate, and you have a more or less sound product and go to market strategy, then you will get a better valuation. This is the type of seed investor that you need to look for.
Also, don't get more money than what you absolutely need for the next 6 month. You will be in an infinitely better position to negotiate once you have traction. Traction trumps everything.
Cheers,
Pere
In business terms, you have described a lot of what your startup doesn't have. Potential market share is only applicable IF you have captured it. Vertical and horizontal growth channels are only meaningful IF your team can identify and develop those channels. As for your investors, are they trying dump debt? Are you savvy enough to review, digest and negotiate the terms of investment? Get the money to hire a venture pro to assist you and look out for your best interests. I recommend the Elliot Davis firm call the Greenville, SC office ask for Charles Duke. Continued success and for development experience to drive your vertical And horizontal growth channels hire me. Let's talk soon.
There are 9 methods of startup valuation. The most appropriate method would be as per the suitability of your startup. My company offer the valuation services. You may setup a call to know more or in case you need my feedback.
I like David Favor's approach: Bootstrap if you can and raise money only when you have to.
If you do need the cash, however, convertible debt allows a softer approach to valuation than selling equity. Please let me know if you'd like to discuss further.
Best of luck.
There are some good responses here. Try not to take money yet. It's subjective. Make sure you are taking money from someone committed to your space.
But, at the end of the day, if you plan to raise capital and you've already got people willing to bet on you, then take the money. Any amount.
Newer founders very often get hung up on valuations and dreamy future exits in the billions. If you secured $50-100k now, demonstrated traction, and then either raised a later seed/small series A, then you're on your way. Or, even better, you get acquired at around $2M. It's not newsworthy, but you just pulled a 20X+ return, proved you're a worthy founder, and can move on to the next startup idea.
The big takeaway: don't get hung up on value at this point.
Second takeaway: take your emotions out of it (and any big $$ fantasies). Find what makes good business sense and take a shot.
I've raised money from family, angels, VC's, you name it. I've been through acquisitions (and the *many* talks that didn't end up in acquisitions). And I'm an investor - so I see it from both sides. If you want to jump on a call and talk it through, just let me know.
You can value startup based on Net Assets and Expected Profit (Goodwill). Goodwill represents things like brand name, estimated customer base for product and market value of product. You can calculate expected profit by estimating number and size of contracts and opportunities that you think your product will be able to achieve (keeping in view market base and trends).
Convertible notes or Simple Agreements for Future Equity (SAFE) solve this and defer the valuation until you have traction. Standard agreements provide a 9-12+ month runway of capital for launch in exchange for a 20% discount to a priced equity round that you raise (sometimes with valuation that cap that places a minimum equity amount for these investors).
There are many resources online that can help. I recommend looking at: https://startupvalue.io/ to give you an idea of how valuations are created based on the problem you've solved.
Calculating the value of your startup, especially before launch, can be challenging. However, there are several methods you can consider to estimate your startup's value. Keep in mind that valuation is as much an art as it is a science, and different investors may use different methods. Here are some common approaches:
Comparable Company Analysis (CCA):
Look at the valuation of similar companies in your industry or niche that have recently raised funds. Consider factors such as stage, growth potential, and market conditions.
Discounted Cash Flow (DCF) Analysis:
Estimate the future cash flows your startup is expected to generate and discount them to present value. This method requires making assumptions about future revenues, expenses, and growth rates.
Market Multiples:
Determine industry-standard valuation multiples, such as the price-to-earnings (P/E) ratio or price-to-sales (P/S) ratio, and apply them to your startup's projected financial metrics.
Cost-to-Duplicate:
Estimate the cost it would take for someone to replicate your startup. This method considers the cost of building the product, acquiring customers, and establishing a similar market presence.
Angel Investors' Rule of Thumb:
Some angel investors use a rule of thumb, like the "Berkus Method" or the "Scorecard Valuation Method," which assigns values to various aspects of your startup, such as the quality of the management team, the size of the opportunity, and the prototype or product development.
Stage-Based Valuation:
Since your startup is pre-launch, the valuation might be based on the specific stage of development (e.g., prototype, beta testing, user acquisition). Each stage may have different risk factors and potential for value creation.
Investor Negotiation:
Ultimately, the value of your startup is what you and potential investors agree upon. Be prepared to negotiate, and be aware that different investors may have different perceptions of risk and potential return.
Convertible Notes or SAFE Agreements:
Some early-stage startups opt for convertible notes or Simple Agreement for Future Equity (SAFE) agreements instead of a firm valuation. These instruments delay the valuation discussion until a later funding round.
Before presenting your startup to potential investors, it's crucial to have a well-prepared pitch that clearly communicates your value proposition, market opportunity, and growth strategy. Investors will likely be interested in your team, the problem you're solving, and your execution plan.
Consider seeking advice from mentors, industry experts, or financial advisors who can provide insights into your specific market and help you refine your valuation approach. Additionally, remember that valuation is not a one-size-fits-all process, and it often involves a degree of subjectivity and negotiation.
Depending on your neighborhood and how people tend to admire your products it should be easy provided you take it step by step, you just need to pay attention, we can deliberate on it more so I know what you're working
