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
-
Should I charge for a pilot project?
Generally speaking, Yes. I say this for a couple primary reasons. 1) If you do not place value in your product, why should the customer? And if you are not charging for it you are not placing value on it. 2) the customer will be more "invested" in the success of something that has cost them something. If it was free and it fails, "who cares"? if it cost them resources they may be more interested in making it work. There could be overriding factors, but this is where I start with a question of this nature.MF
-
What is the best way to write a cover letter to an early-stage startup?
Better than a cover letter is to actually proactively DO something to help them. It'll show them not only that you've researched them, but you're passionate about the startup and worth bringing on. A man got a job at Square early on for just making them a marketing video on his own (back before they had one). Since you're a web designer, design a stellar 1-pager that's targeting their message to a particular niche. Something they could use on social media or something. If they're like most startups, they're not interested in reading cover letters. They're interested in passionate individuals who can add value to the organization.AS
-
What's an alternative to equity based compensation that recruits, motivates and retains employees?
Before we dive into the equity,salary and such. Motivation and retention begins with the CEO. Ask yourself what is the culture of the company? If you don't know anything about culture then start with the basics: 1. Do you value employee opinions? Do you ask for others opinions? 2. Do you encourage people to listen to employee problems? Do you listen to what other people have to say? 3. Do you encourage others to come up with ideas and suggestion? 4. Can you sell your dream? 5. Can you build consensus? 6. Hire people for their strengths and fix their weaknesses 7. Don't assume shit, always ask 8. Treat your interns like employees and mentor them 9. Have a clear vision and be able to articulate it 10. Can you admit when you are wrong? VERY IMPORTANT So if you have a strong company culture this will help with new hires, motivate, and retain talent. The frosting on the cake is free food/snacks, happy hours, company paid healthcare benefits, etc.TP
-
What happens to a convertible note if the company fails?
Convertible notes are by no means "earned." They are often easier to raise for early-stage companies who don't want to or can't raise an equity round. Equity rounds almost always require a simultaneous close of either the whole round or a defined "first close" representing a significant share of the raised amount. Where there are many participants in the round comprised mostly of small seed funds and/or angel investors, shepherding everyone to a closing date can be very difficult. If a company raises money on a note and the company fails, the investors are creditors, getting money back prior to any shareholder and any creditor that doesn't have security or statutory preference. In almost every case, convertible note holders in these situations would be lucky to get pennies back on the dollar. It would be highly unusual of / unheard of for a convertible note to come with personal guarantees. Happy to talk to you about the particulars of your situation and explain more to you based on what you're wanting to know.TW
-
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
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.