Loading...
Answers
MenuHow do I calculate value to a new startup to share with potential investors?
I have a service app ready for promotion and marketing.
Answers
Hi:
Congrats on getting your service app to this point.
Fundraising takes a lot of energy and time--more time than you think it will.
Instead of embarking on that journey right now, consider channeling your time and energy into generating sales: Bootstrapping the promotions and marketing to start getting paying customers in the door.
Not only will that generate the revenues that you'll ultimately be showing potential investors, but you will gain invaluable insights into your app--what works, what doesn't and what you need to tweak/modify to fulfill marketplace demand.
If you wish to discuss, send me a PM through Clarity for 15 free minutes.
Cheers,
Kerby
Im experienced at developing presentations communicating startup projects to potential investors. Do you expect your customers to pay monthly? I would suggest developing a chart displaying different rows showing if x amount customers purchase your application this is how much net profit the company will generate per month. Showcasing one column # of users & a second column net profit would be a great start. Showcase your projections for the next three years using the same flow. Factor in ALL of your expenses to display net profit including hosting, fees, maintenance etc. Outline inside your presentation the percentage(%) you are giving potential investors. Communicate their Return on Investment and at what point they would break even(Break Even Analysis) . If you have any questions I will be happy to answer them on a call.
Well... The effect way...
Start making sales.
If you have a great App, there are many ways to make initial sales.
Once you have a few sales, you'll also have feedback on your App code.
Guideline: The more sales you're making, the better deal you can get with investors.
Also, during your initial sales phase you may find a marketing approach which works so well, you no longer require any investor capital.
There are a number of tools available for pre-revenue valuation which are commonly used in Silicon Valley and other startup hubs. These can help you calculate a close estimated value without needing any financial inputs, since typically you would not have any real financial data available for a newly-launched startup. Some of these methods include Risk Summation, Scorecard, and the Berkus methods. There are some automated tools available online to calculate valuation based on these methods, such as at eleva8or.com and other platforms.
if you are looking for coming to a valuation in order to raise an angel round to get started with your GTM strategy, I would recommend you work on a deck that has product/service market fit, and has a clear outline of your total addressable market (TAM) - I also like to refer to it as 'achievable' market from a founder perspective. List out your product/service USPs and how it stacks up against the market incumbents - define your value proposition and have a simple projection in how much business you aim to drive over the next few (4-6) quarters. if you have already started active sales, Substantiate this with the results you've achieved and put up a projection. Once you have this, talk to other entrepreneurs in your network to validate and then apply standard industry math to see where you are at.
Related Questions
-
What legal precautions can I take to make sure nobody steals my startup idea?
I've discussed ideas with hundreds of startups, I've been involved in about a dozen startups, my business is at $1M+ revenue. The bad news is, there is no good way to protect ideas. The good news is, in the vast majority of cases you don't really need to. If you're talking to people about your idea, you could ask them to sign an NDA ("Non Disclosure Agreement"), but NDAs are notoriously hard to enforce, and a lot of experienced startup people wouldn't sign them. For example, if you asked me to sign an NDA before we discussed your Idea, I'd tell you "thanks, but no thanks". This is probably the right place though to give the FriendDA an honorable mention: http://friendda.org/. Generally, I'd like to encourage you to share your Ideas freely. Even though telling people an idea is not completely without risk, generally the rewards from open discussions greatly outweigh the risks. Most startups fail because they build something nobody wants. Talking to people early, especially people who are the intended users/customers for your idea can be a great way to protect yourself from that risk, which is considerably higher than the risk of someone taking off with your idea. Another general note, is that while ideas matter, I would generally advise you to get into startup for which you can generate a lot of value beyond the idea. One indicator for a good match between a founder and a startup is the answer to the question: "why is that founder uniquely positioned to execute the idea well". The best way to protect yourself from competition is to build a product that other people would have a hard time building, even if they had 'the idea'. These are usually startups which contain lots of hard challenges on the way from the idea to the business, and if you can convincingly explain why you can probably solve those challenges while others would have a hard time, you're on the right path. If you have any further questions, I'd be happy to set up a call. Good luck.DK
-
How much equity should I give an engineer who I'm asking to join my company as a co-founder? (He'll be receiving a salary, too, and I'm self-funding)
You will find a lot of different views on equity split. I haven't found a silver bullet. My preference/experience is for: 1. Unequal shares because one person needs to be the ultimate decision maker (even if it's 1% difference). I have found that I have never had to use that card because we are always rational about this (and I think us being rational is driven because we don't want a person to always pull that card cause it's a shitty card to pull) 2. When it comes to how much equity, I like Paul Graham's approach best: if I started the business by myself, I would own 100% of the equity; if xxx joined me, he/she would increase my chances of success by 40% (40% is just an example) at this moment in time. Therefore, I should give him/her 40% of the company (http://paulgraham.com/equity.html) 3. In terms of range, it could go between (15-49%) depending on the level of skill. But anything less than 15%, I would personally not feel like a cofounder 4. Regarding salary and the fact that you will pay him/her, that's tricky but a simple way to think about it: If an outside investor were to invest the equivalent of a salary at this exact moment into the startup, what % of the company would they get? (this may lowball it if you think the valuation is high but then again if you think you could get a high valuation for a company with no MVP, then you should go raise money) One extra thing for you to noodle on: given you are not technical, I would make sure a friend you trust (and who's technical) help you evaluate the skill of your (potential) cofounder. It will help stay calibrated given you really like this person.MR
-
As a startup, is it better to find a way to pay for services (i.e. design) or trade equity for it?
Before I get to your question, let me give you a tip: always aim settle questions of payment before the work happens. It is ten times easier to agree on a price beforehand, and having done that doesn't stop you from changing it by mutual agreement later. The problem with paying cash is pretty obvious: you don't have a lot of it. The problems with paying equity are subtler. The first one is that early-stage equity is extremely hard to value. A second is that equity transactions require a lot of paperwork. Third is that entrepreneurs tend to value their equity much higher than other people would; if not, they wouldn't be starting the company. And fourth, people like designers are rarely expert in valuing businesses or the customs of of startup equity valuation. In the past, I've both given and received equity compensation, and it's a lot more of a pain than I expected. In the future, what I think I'd try is convertible debt. That is, I'd talk with the designer and agree on a fair-market wage. E.g. 100 hours x $100/hr = $10k. The next time we take investment, the $10k turns into stock at whatever price we agree with our investors, plus a discount because he was in before the investors. Note, though, that this will increase your legal costs and your deal complexity, so I'd personally only do this for a pretty significant amount of work. And I'd only do it for somebody I trusted and respected enough to have them around for the life of my business.WP
-
I'm having problems with ideation for a startup, I'm a web developer, what needs of yours aren't being met? Or how can I find a big problem to solve?
It's really ill-advised to solicit your vision from anyone. In my 20 years of building, investing and supporting tech companies, I don't know of a single success story that has it's origins in someone with your approach. Running a tech startup is incredibly hard. It demands sacrifices few are truly able to make and come with it tremendous risks that most people are unwilling to take. It sounds to me as if you want the startup life because you have an impression of what it's about but haven't yet experienced it first-hand. I'd encourage you to first join an early-stage startup. Developers are incredibly in-demand. Find an entrepreneur who has some experience, funding and a compelling vision that you believe in and get to know what the journey is really like.TW
-
Business partner I want to bring on will invest more money than me, but will be less involved in operations, how do I split the company?
Cash money should be treated separately than sweat equity. There are practical reasons for this namely that sweat equity should always be granted in conjunction with a vesting agreement (standard in tech is 4 year but in other sectors, 3 is often the standard) but that cash money should not be subjected to vesting. Typically, if you're at the idea stage, the valuation of the actual cash going in (again for software) is anywhere between $300,000 and $1m (pre-money). If you're operating in any other type of industry, valuations would be much lower at the earliest stage. The best way to calculate sweat equity (in my experience) is to use this calculator as a guide: http://foundrs.com/. If you message me privately (via Clarity) with some more info on what the business is, I can tell you whether I would be helpful to you in a call.TW
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.