Ask HN: Issue with Startup Valuation | Hacker News Reader

Ask HN: Issue with Startup Valuation

5 pointsthemichael3 comments

Dear HN members, as I have been following this site for quite a while I have seen these questions come up over and over again. Therefore I decided to post mine. Thanks in advance for your help. I am about to fund my startup. We own the licenses for a killer software product, have 8 large business customers in the pipeline without having a website, done any marketing etc. The issue is the following. I have trouble scaling. Hence I decided to take in foreign capital from Mr.X who will work for the startup for 1 year (guaranteed), and invest 50 k for a 20 % stake. Does this seem like the right valuation ? I would be highly grateful for any comments on how to find a proper valuation. Thanks

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Without further information (such as the size of your average sale, the potential market for the product ('killer' is not enough), the time invested and so on) it is very hard to put any kind of value on what you have there.

My suggestion would be that you approach a professional in the field (for instance a friendly VC contact) and give them the figures as much as you can and then work out a reasonable bandwidth together.

This will take you some effort, but at the end of that you will know a lot more about your company than you do now.

Make sure that you do not end up paying Mr. X his own investment back as a salary, otherwise he's just an equity-for-work employee, not an investor per-se.

I'm confused. Surely the "8 large business customers" would be providing enough revenue to make 50K irrelevant in terms of scaling the business up.

If I were you, I'd be going about it the opposite way: put together a good, detailed business plan, and figure out your most effective growth path. Then, decide how much (if any) outside capital is required to finance that plan. Then, try to find what is the best way to raise the needed cash, and how little equity you'll need to give up in order to get it.

Thanks for your comments.

@jacquesm Average sale varies from 1k per month to 15.Time:8 months. The potential market is in the trillions. "Make sure that you do not end up paying Mr. X his own investment back as a salary, otherwise he's just an equity-for-work employee, not an investor per-se." -Good point.

@michael_dorfman True. The issue is that Mr.X is willing to work on the project for one year without any cash compensation.

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