We are a bootstrapped company of three. Our primary competitor is interested in acquiring us (acqui-hire). How do we place a value on our startup? Since we don't have any revenues or a huge user base? The key value for the competitor is in getting us on board as employees for a two years. There aren't any investors either since we bootstrapped the business with just our own time.
Ideally, you need to understand their intent for your service/product - is it of value to them and do they plan to monetize it or do they just want your team out as competition and truly only care about acqui-hire transaction. In any case, you did something right to get their attention.
Traction on a free product matters still - if you have a good record of users signing up for your free plan with say 20-30% growth month over month for the last few and good usage stats, then you can project your user base for say the rest of the year and then speculate on your ability to monetize them (convert 1-5% to a paid plan). This isn't likely to come up with a true value in very early stages, but a good exercise to go through anyway, in case the numbers end up looking good.
One way on putting a price on a pre-revenue product is adding up the hours of the co-founders it took to build the product, plus any marketing expenses (not so much formation/legal/etc.). This could be irrelevant in an acqui-hire transaction, but very relevant if product is getting a life of its own under the new owner.
A few things are still unclear to me and would make a difference:
1. Are you considering retaining ownership of the product/service and growing it on your own? What is your rock bottom price that would be Ok to compensate you for sweat equity? At the end of the day, the 3 of you need to be comfortable with the final number, so it's worth discussing.
2. Do you know and/or care what happens to your product post-acquisition? If I built something, it would be important to me as a record of my success and have some value, so I would ask what the plans are for the product as a part of the initial discussions.