How do we valuate our company?
We are a group of people from Brighton, who within the next 6 – 8 weeks are to launch a brand new on-line community service for an identified market segment which at the moment consist of more than 2,500,000 members in UK and growth with more than 300,000 new members per year.
Though we do not expect to be able to attract all these potential members, we do expect to sign up about 135,000 the first year, reaching 275,000 the second year and 415,000 by the end of the third year.
Based on VERY conservative figures, the company is expected to generate profits of approximately £ 500,000 after the first year, £ 2,100,000 the second year and 1,900,000 the third year.
We are looking to raise some finance (about £ 50,000) to be used for initiation cost relating to preparation of the launch and running cost the month prior to and after launch of the service, as we here after will have a very positive cash flow every month hereafter.
Ideally, the investor should also be able to contribute to the company in other ways than just capital, both as none executive board member and as an ambassador for the service (thinking about it, the ideal investor – for reasons not to be devolved here – would actually be Duncan Bannatyne).
Where we do not want to relinquish more equity than necessary, we do not want to risk over valuating the company neither, making the mistake that most new ventures make when seeking funds.
So, can any one give us some advice as to how much we should value the company at and show how you have reached to the conclusion?
Though we do not expect to be able to attract all these potential members, we do expect to sign up about 135,000 the first year, reaching 275,000 the second year and 415,000 by the end of the third year.
Based on VERY conservative figures, the company is expected to generate profits of approximately £ 500,000 after the first year, £ 2,100,000 the second year and 1,900,000 the third year.
We are looking to raise some finance (about £ 50,000) to be used for initiation cost relating to preparation of the launch and running cost the month prior to and after launch of the service, as we here after will have a very positive cash flow every month hereafter.
Ideally, the investor should also be able to contribute to the company in other ways than just capital, both as none executive board member and as an ambassador for the service (thinking about it, the ideal investor – for reasons not to be devolved here – would actually be Duncan Bannatyne).
Where we do not want to relinquish more equity than necessary, we do not want to risk over valuating the company neither, making the mistake that most new ventures make when seeking funds.
So, can any one give us some advice as to how much we should value the company at and show how you have reached to the conclusion?
Asked by Lars Lemming,
November 2009 - Contact this person
2 Answers
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Part 1 of my answer to 'How do we valuate our company?'
Lars,
Thanks for joining VentureNavigator - and it sounds like you're working on an exciting proposition.
I apologise for the long reply, but I hope these links are useful to you and to others!
(a)
VentureNavigator has a number of articles on the subject of Valuations:
http://www.venturenavigator.co.uk/search/category/49/1/10
(b)
Also, look at some of the articles about Fundraising:
http://www.venturenavigator.co.uk/search/category/38/1/10
(c)
I think this article is particularly good : 'What investors look for' :
http://www.venturenavigator.co.uk/content/what_investors_look_for
(d)
Also, you may find the Investment Readiness Assessment to be a 'common sense' set of questions that will test your proposition from the eyes of an investor:
http://www.venturenavigator.co.uk/content/investment_readiness_assessment
More in Part 2..... -
Part 2 of my Answer: How do we valuate our company?
(e)
Given the amount of money that you're wishing to raise, then I would recommend that you approach Angel Investors (http://www.venturenavigator.co.uk/content/business_angels), rather other forms of investment. BUT, there is nothing like Friends and Family too as the burden that external investment loads on a young company is immense. I would encourage you to explore this source of funding exhaustively.
(f)
Yes, you're correct the money that you take from investors should be more than just cash, it should be 'smart'. I'd encourage you to identify what YOUR business needs in terms of skills and then look to identify individuals with those skills.
You may find this article useful to put the issue in perspective:
http://www.venturenavigator.co.uk/content/three_team_domains
and the Management Skills Assessment, to identify holes, listed on this page:
http://www.venturenavigator.co.uk/assessment
(g)
FINALLY (!), Doug Richard (former Dragon and VentureNavigator's Chairman) is running a one-day boot camp on fundraising: 'Find, Pitch & Close. The Art of Securing Investment' on 18th November in London:
http://www.schoolforstartups.co.uk/index.php?option=com_content&view=article&id=92:find-pitch-and-close-lcndon&catid=25:events&Itemid=4
I'd really welcome your feedback on the articles above. Please rate the articles and / or reply to me, as convenient.
Happy venturing!
Arthur.
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