How do you account for your time when asked how much has been invested in the company so far?


4

A potential investor is asking us to account for our own (so far unpaid) time when evaluating the amount of money invested in the company to date. How do we account for it - it's not like we've been keeping track of hours, though we have definitely been working more (much more) than 40 hours a week?

Investment Valuation

asked Feb 23 '11 at 13:34
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Blueberryfields
426 points

2 Answers


2

He most likely doesn't want specific answers, estimate and give him your best guess. The potential investor most likely is wanting you to put a price on your time and effort spent, so do just that.

Work out how much you would be paid to do the same things you've done for your company for an indentical company where you are the employee in the same position as you are now. Estimate your hours and then do the maths by timing your hourly rate by the number of hours spent.

If there are multiple people, this would be multiplied by the number of people involved in the company. It's how I would go about it.

answered Feb 23 '11 at 17:15
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Digital Sea
1,613 points

2

First of all, I would ask the investor directly what he is after with this number. There is little sense in trying to guess and by understanding what is driving his question, you may realize that there are better ways of answering it. As others have said, it should be fairly straightforward to figure out how much time you have spent on the project. Was it full-time, half-time or just a few hours a week for x period of time. You can apply this percentage to a normalized salary for a full-time role in a startup to come up with a dollar value if you want.

In my opinion, it is more important to understand how this number will be used than what its value is. Presumably you have some sweat equity in this business as a founder for having conceived of the business and gotten it to the stage it is at. This amount of equity is not necessarily directly related to the number of hours you have spent getting the project off the ground. The investor may wish to compensate you and your colleagues with cash at the time of his investment with back-pay for the hours you have spent. It would be odd to do this with equity or options as these would be insignificant as compared to your stakes as founders and to some degree this would be double counting.

answered Feb 24 '11 at 20:34
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Zippy
871 points

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