Valuation for a B2B SAAS past prototype, but pre-launch?


3

This is a little complicated, but I have an interested group of angels asking for how much for 10%-20% of my company. I have no clue what to tell them, or what my valuation is.

  • It is a B2B Saas product, past prototype, but pre-launch (so no revenue yet).
  • I've worked fulltime as the CEO for 1.5 years (without pay).
  • My cofounder invested $75,000 cash, and has also worked part-time for a year; we're not developers so we had to hire to have it built.
  • We had top of the line UI and graphic design done as well.
  • A year ago, I launched a B2B marketing channel for the software (to gain some customer traction before the product was built), the annual growth rate hit 3,000%, and it actually generates it's own income now from advertising. Free marketing for my software?
  • A few months ago, I added a strategic consultant to my team (no salary, for a small piece of equity). He has 14 successful exits under his belt (3 IPO's).
  • The consultant I hired is negotiating a $1.2 million dollar client for the software; but it's still 6 months out before they're looking to buy; so there is no contract yet.

What do you guys think?

By the way, I'm a serial entrepreneur in my mid 20's. I've only had small service based businesses, this whole "high growth tech startup" thing is new to me....so be gentle!

B2B Angel Saas Investors Valuation

asked Nov 12 '11 at 09:21
Blank
Amanda
16 points

1 Answer


1

It's not so much what you tell them as it is how you tell them. Why...?

Because traditional valuation methods based on assets, income multipliers, or rule of thumb aren't going to work for your startup. So let's face it, you just have to convince investors of your potential worth. Time to do a few calculations and then put on your poker face.

Valuation Methods Here are several valuation methods. You can always create your own method, or use the median value of several methods.

  1. The Scorecard Method
  2. High Tech Start-up Valuation Estimator
  3. The Berkus Method
  4. Venture Capital Method
Just Playing Around All of those valuation methods are pretty complex. Another way of looking at it might be to evaluate the time value of money: Investment amount = Present value of (Future value * % ownership)

In this case, if the future value of the sale of your company is $1.2 million, and the ownership of your investors is 20%, then the future value of their money is $240,000. The present value of that money can be calculated based on the number of years it takes to achieve that and the % return the investors expect.

For example, if you figure 5 years to achieve $1.2 million, with an expected rate of return at 30%, then the investment you might expect is around $64,000. However, if it only takes a year to achieve a sales price of $1.2 million, then you might expect $180,000.

So you can see, you can play with the future value of your company (terminal value), time projections, and the rate of return expectations of your investors to come up with pretty much any amount that you need them to invest.

Better start working on that poker face...

answered Nov 29 '11 at 15:34
Blank
Ralph Miller
96 points

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B2B Angel Saas Investors Valuation