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.
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!
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.
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...