Found+READ: Comments on stories by Amit Bijlani

Babak Nivi — Thu, 24 May 2007 07:07:34 GMT

Amit,

Why are you trying to establish a valuation? If it is because you are trying to raise money, your valuation is the market clearing price. Things are worth what people pay for them. That’s it.

Decide how much money you want to raise in this round.

Once you have the $ amount established, your angels will probably ask for 10%-20% of the company in return for that amount.

Alternatively, do a debt round. More on debt here: http://www.venturehacks.com/term-sheet-hacks#convertible-…

Decide how much $ you want to raise by figuring out how much it is going to take to do your next round at a 2x-3x increase in valuation.

Big V — Sat, 12 May 2007 09:28:38 GMT

“After reading several articles on startup valuation and listening to Guy Kawasaki, it seems like basing your valuation on revenue projections is not a sound strategy”.

Are you sure? Revenue projections is the one sure way to assess a company’s potential.
I’d recommend you break it into two steps – (a) Revenue projections tell you big the market is – and how much your business could be worth and (b) “Assets, patented technology, user base” are just means of assessing if your business model is defensible? Is there a substinable advantage that you can build that will allow you to eat a large fraction of the total market?

If both (a) and (b) are in your favor, its all yours. Otherwise, good luck getting funded!

Kevin Donaldson — Fri, 11 May 2007 20:01:54 GMT

Amit – just noticed that there was a whole series of separate posts on this topic, which I just read:). My suggestion would be to focus on finding a beta partner/customer to work with. If they see value in the idea, they will work with you.

Kevin Donaldson — Fri, 11 May 2007 19:54:08 GMT

So I am not super seasoned in this regard, but if you don’t have revenues, patents, etc, the valuation of a team early on seems to be much more about who is on the team (background, experience with startups, experience in your chosen industry), the idea itself, and the barriers to entry from competitors. Another other option is to forget about valuation, and focus your energy on getting something to market by bootstrapping. Angels will be a lot more receptive if you have signed a customer (even if the revenues are low)
As for equity – best of luck in giving away only 10% unless the dollar amount you are looking for is really low, in which case – refer back to the bootstrapping comment.

alex gong — Thu, 24 May 2007 07:15:19 GMT

first off…why don’t you have revenue projections? If you have no clue what you’re going to be making in 5 yrs, why are you working so hard on this? How do you know it’s worth your time?

IP is a way to defend your projected revenue stream. You definitely need something to build a wall with to keep competition out.

And you can always get information on your competitors if not directly then indirectly – what have they bought? How big is their office? Go there during the day and count the cars. Do a scan of their servers, how many different aliases are they using for their inband applications? That gives you an idea of their scale and you can extrapolate.

Amit: he’s a stab for you: Build a smart phone simulator. Search around, you can probably find the software (it might not be legal, but hey, look at Apple back in the 80s)

Amit Bijlani — Thu, 10 May 2007 15:58:26 GMT

We have technology, just no patents yet. We have bootstrapped for the last six months to build our prototype. However, to launch a beta product we really need cash to make it happen. You can only bootstrap so much. If we were building a web app it would be so much easier but our software app is targeting smart phones.

Ira Pfeifer — Tue, 19 Jun 2007 08:03:43 GMT

I agree that angels/VCs are looking for something concrete on which to value a company – a good business plan is key, of course, but you need to have built something to get interest unless you can stand on the strength of your reputation alone (a la Friis, Rose, etc.).

Let me ask you this – why are you approaching angels if you have no technology, no users, and no assets? Is your business plan predicated on heavy initial investment into unproven technology? If so, you’re going to face a tough sell – in my experience, those businesses usually come out of college research labs and corp think tanks where a prototype can be built before the team goes looking for production money.

Amit Bijlani — Thu, 10 May 2007 07:52:17 GMT

Every startup wants to believe that they are unique and revolutionary, it is no different in our case. We do have a business model and revenue projections but after reading several articles on startup valuation and listening to Guy Kawasaki, seems like basing your valuation on revenue projections is not a sound strategy. Investors seem to prefer something more tangible, ie. assets, patented technology, user base, etc.

Let me rephrase the question, when you are approaching angels and have none of things I mentioned above as yet, how do you justify 10% equity with X dollars? Just base it on revenue projections?

Bogus Jones — Thu, 10 May 2007 15:55:17 GMT

So called ‘comparative analysis’ is good to do when you’ve already got revenue, COGs, and overhead…so you can compare how you’re doing to visible competitors. However, the way this question is framed makes me think that you’re afraid to ‘throw down’ a business model and layer them with growth projections based upon an estimation of the size of the target audience.

Since you’ve got ‘no direct competitors’ you are either a genius/visionary or your idea simply doesn’t have a business model that can support it.

:-) Bogus Jones