We are a start up company set up 14 months ago. We were building few products which we could not finish yet. we plan to finish it in another 6 months. Since our initial budget were very low. We had to parallely provide software service work (building s/w other than our products like websites) to survive. Based on that, this year we decide to look for investor who can fund our company for next 12 months hoping that we could use this time
to finish our product and get in to market. We need minimum $50k to run our firm for next 12 months with minimum salary set for even experienced working partners. Currently there are 2 working partners in company. So our offer for investment was 50% Ownership for this amount. We got two investors. And one investor was ready to share the half of burden for 25% Ownership in company. He is from an IT background. We managed to get one more
business whose background is from chain supermarket runner. The problem here is, this guy do need to see asset worth $25k in the company, all he see is a number of computers, printers and some furnitures. Is this the right way to assess the way of a software company?
Physical assets like equipment do count but that is not the only ones. It is normal for assessment to include current and future value therefore you can also include potential revenue that you are expecting in the first year and perhaps even the second or third if you are clear and confident about your forecasts, financial leverage such as the ability to raise loans when necessary and credit worthiness and other capital raising ability, accounting assets such as accounts receivables and expected cash flow.
Other factors to consider include suitable exit strategy, the investment made into the business by the other investor and pricing policy. Overall, I think you need to create a reasonable business plan with cash flow predictions and asset worthiness that you can show to this second investor. Seeing things down on paper might help convince him. If you have trouble projecting a profit in the near term, try lowering the working partners fee for a few months.
Do note that in some cultures, there is a prohibition on including future revenue in assessment calculations as that involves uncertainty.