Ask YC: What is an appropriate valuation for a startup that is brand new? If there is just an idea and a bit of research, what is a fair valuation for an angel investor to invest in a startup at? |
Ask YC: What is an appropriate valuation for a startup that is brand new? If there is just an idea and a bit of research, what is a fair valuation for an angel investor to invest in a startup at? |
There is absolutely no information even about size of the potential market, business model, competitive arena, price points, required capital investment and so on.
You will have to do a bunch of homework (such as a minimalist business plan) to give you an idea of what you expect to do with your business, then you can go and put a value on it.
Garbage in -> garbage out.
YC has turned the angel investor game in to a horse race, they bet on the teams, to a much lesser extent on the ideas.
'conventional' angel investors will likely not be able to evaluate you (and possible co-founders) as a team, but they may be able to understand the business proposition behind your idea once you can explain it to them.
That will be central to the valuation, as well as your expertise and skill relative to what is needed to develop it and take it to market.
A couple of weeks of hard work should get you to the point where you will be able to answer your own question, after all, you're the one that's being diluted so you should know the value of what you have better than anybody.
You're asking the wrong question, though. Regardless of whether you can get an investment (and sure, you can always scrounge up $2000 from somewhere), this is the worst conceivable time for you to try to take an investment. You are optimizing for terms will ultimately cripple your business.
Build something first.
Or an absolutely fantastic one (probably still < $20,000).
If you are looking for one and have no contacts then I don't think there is really an answer to your question, but somewhere close to zero.
However if someone has approached you then that is a different question. I've talked about ideas in the past and had people ask me about investment. The way I value that is if I am going to work the next five years at startup levels of stress and hours I value my income at US$200,000 a year. So five years (commitment I would assess putting into it) x 200K is $1,000,000. Then it is up the investor as to what percentage they are after. So 10% means I would want them to invest around $100K.
That all needs to be balanced by your level of experience, financial expectations, how much you need the money - and how likely you perceive the potential to accept the concept.
If the team has no track record, it will be much, much harder.
From your perspective taking investment is a serious commitment. You're promising to to spend the next N years dedicating yourself to making the company successful. That's worth quite a bit if you're at all likely to succeed.
Just ask yourself how much equity would you sell and for what price?
I think a sane ballpark is something like 10-15% for $100-200k, 20-25% for $500k, or 30-35% for $1M. But again, that's just a ballpark.
1) There are (or will be) 2 founders that are prepared to dedicate years to the venture
2) They're able to convince an investor to put money in (otherwise valuation won't matter).
To me that's enough to justify the ballpark valuations I gave. You don't need to know their specific market, product, or anything else.
Check: http://www.avc.com/a_vc/2010/10/employee-equity-dilution.htm...
Because you've offered zero information to dial it in, $500k to $4m post-money as a wag. Depends on team, if you're in the valley, and your ability to create a market for your stock.
Even a mockup is better than nothing, but you'd do well to find your own tech partner.
What I'm driving at is that some ideas you can do a minimum viable product very quickly, other more ambitious ones might need months of work - I was trying to avoid making assumptions about what this unknown idea might be, and throw the focus on potential cost to launch. The question is so open-ended that it sounds like an interesting idea without any financials yet; so I'm trying to estimate the cost of satisfying my curiosity about whether or not a market exists for whatever-it-is.
A webapp that solves a particular problem by matching buyers and sellers might need only a week of work to begin being useful. But not all ideas are so straightforward - for all I know s/he might be imagining the next evolution of the spreadsheet.
Sorry but no. I don't care if the founders are prepared to dedicate the rest of their lives to it (assuming it is founders and not founder), after all you could dedicate your life to making a better mousetrap but for me that would be worth $0.
The guy is basically asking how much his time is worth without giving his qualifications for all you know he's flipping burgers at McD's.
My brother in law came up with an idea for a better garbage can, not immediately obvious and not in production anywhere, after some 'research'.
What is it worth?
For me it's worth $0. He has no background in manufacturing, sales, marketing or design, he does not have anybody that would dedicate his life to it, and he's not prepared to mortgage his house and let go of his day-job to pursue it. So it won't be going anywhere.
I don't see this guy making any statements about what he will bring to the table either other than the idea, not even implicit ones, no statements about commitment or anything.
So, more info is needed. Both about the idea and the OP (track record would help but likely none or he wouldn't be asking the question).
No realistic valuation ever rested on this little info.
Sure 'angel' investments fall in to a certain range, say 0 to 10% of the stock for 0 to $1M. But that's like saying the sun will be shining tomorrow, that's not an answer to the question.