# Calculating the valuation of a startup

1

I am going to join a start-up founded by one of my colleagues. He made a mobile app by which he won some prizes, and got funding from a government program. He is the only one in the company and he's a business/tech person, i.e. a tech person with business skills.

Here are the details of the company:

• Time since founded: 10 months
• Capital: \$250K
• Estimated effort he did in that company: \$7K
• Total prizes company won based on that product: \$7K
• Revenue from that product: None yet

How much is the company worth, and what share should I get in its stock?

How much will the company be worth in say 2 years if it makes, for example \$1000 revenue per year? Will the dominant factor be the revenue it makes per year?

3

At this point, the company is worth anywhere from the money in (\$250k + \$7k + \$7k = \$264k) to maybe 1.5 to 2x that. The reason is simple, the company has no revenue. Without revenue, it's hard to get an evaluation much higher than a couple of times the money in.

The number of shares or percent ownership of the company is a bit tricky. If you are a founder, then you usually split the founders shares with the other founders. If the company is already formed, then it all depends on your expertise and future level of contribution.

If you are just an engineer, then the amount of stock is lower than if you were the VP of Engineering.

The typical breakdown can be anywhere from 1 to 5% of the company if you are just an employee, hired on and not a founder.

• Thanks a lot Jarie , i really appreciate your help – Mbaddar 13 years ago