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Summary:

_This is a revision of Amit’s Question from Tues May 8, 2007_ 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 […]

_This is a revision of Amit’s Question from Tues May 8, 2007_
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, it 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. Our competitors are privately-held, so we have no information on their revenue or other metrics to use to build a comparative valuation for our company.
Let me rephrase the question:
What are rules for a startup to build a sound valuation without using revenue projections?
What are the assumptions one should take into account?
When you are approaching angels and have no revenues or patents or other comparative metrics as yet, how do you justify 10% equity with X dollars? Is it OK to just base it on revenue _projections_?

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  1. 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.}

  2. 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.}

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