

Ask HN: Stormpulse valuation - wensing

We are looking to place a value on our startup as we seek a round of funding.  The startup was seeded on sweat and roughly 50k, and we expect to take 300k-500k to expand our coverage and services and work on the venture full-time.  Coincidentally, PG defines this as the median range of investment for startups coming out of YC in his "Why There Aren't More Googles" essay.<p>I will try to be informative but discrete.  We had between 1 million and 5 million unique visitors to our domain between Aug 15 and Sept 15.  Our map is used as an embeddable widget on 400+ other sites, many of which are well-trafficked media outlets, and our map has been used on CNN during their hurricane coverage.  O'Reilly also happened to mention our site during his Web2.0 keynote.  Also, we have received hundreds of voluntary tips, donations, and thank-you emails.<p>So what percentage should we expect to hand over for this size investment?
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rantfoil
* If your company comprises a few founders/consultants, a great idea, a solid business plan, a working prototype, but none of you have a proven business track record, your typical pre-money valuation will be in the very low millions ($1 million to $3 million is typical). You should be looking for a seed round of $0.25 to $1 million. This is a difficult environment for you, and you should try getting some experience on your side

* If your team has a successful start-up track record, and if you have a 2-5 person management team with significant e-business or technology experience, your pre-money valuation jumps into the high single or low double-digit millions. $6 million to $15 million is the typical valuation range, and you should be looking for a first round of $3 to $10 million.

From: <http://oz.stern.nyu.edu/startups/vc.html>

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SwellJoe
I'd point out that they are no longer at the "prototype" stage, and have very
respectable traction. Having users acts as a great substitute for "business
experience". Thus the first category and valuation suggestion isn't really
applicable.

Of course, it'd be even better if they had revenue. Revenue trumps all, and
means that you're unarguably in the control position--no answer the investor
can give can shutdown your business, if you have revenue sufficient to keep it
rolling.

But, I think they've already proven they have a lot of the stuff investors
look for...so, they're somewhere between your two suggestions even if they
have no prior "e-business" experience.

It also sounds like they're very well-placed for a low-millions acquisition.
Partners are the most likely acquirers, and there's a lot of websites that'd
like to partner with a cool product like StormPulse (though it's cyclical, so
this month it's hot, and it'll drop as the hurricane season dies down).

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mattmaroon
This may sound odd, but 300k-500k is about the hardest amount of money to
raise. You're still too small for institutional investors, and you're large
for an angel round. A typical angel might put in anywhere from $25k-$100k. I'd
guess $50k to be the median, meaning you're looking at having to find 6-10
people.

You're in good shape given your traffic and revenue, so I'm not trying to
suggest that you won't be able to do it. Just be cognizant of the fact that it
actually may be easier for you to raise $3 million than $3 hundred grand.

~~~
rantfoil
It's not impossible to put together an angel round that's $500k or more with
angels, assuming a) there's enough interest, and b) early on, you get angels
who are connected / influential and you get a pile-on effect. (That being
said, it is very hard to do.)

Some have been able to pull together up to $1M or more in $50 to $100k chunks.

As Ivan mentions, VCs like USV, Charles River Ventures and Bay Partners also
come to mind -- they can do $200-$500k seed deals in one shot, or syndicate
with angels.

There does seem to be a step function in valuation though when you get to
Series A -- but that's moreso because of the economics of the VC game. They
want to put $x million in a Series A, and they want to leave enough on the
table for the founders to keep working, so they work backwards from that to
set a premoney valuation.

~~~
mattmaroon
Right, nothing is impossible. It's just harder. You're limiting yourself to
the 2 or 3 VC firms who are ever willing to do this, or large angel groups.
Or, you have to get 10 or so people interested. That's probably even a little
harder right now than it was when I was going through the process, as the
money angels use to invest is often paid for by selling shares of something.

Or you can convince one VC firm out of pretty much the entire set to give you
$3 million. Raising investing is a lot like dating. You try to get set up with
(or find yourself) as many people as possible until you find yourself in a
situation where you like them and they like you. And if your total dating pool
consists of 3 VCs and 2 large angel groups, your chances aren't 0, but they're
a lot less than they would be if the pool was everyone with an office on Sand
Hill road.

There are, of course, strong arguments for not taking that much, I'm just
pointing out that it's easier.

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mixmax
A little off-topic, but anyway:

I live in a non-hurricane part of the world, and as such have no particular
interest in the phenomenon except for when it is covered in the news. I saw
stormpulse here on YC news, and checked it out. Since the site is so well
designed and a real pleasure to use I have often found myself going back to
check up on hurricanes that appear halfway around the world from where I live.

You managed to get a regular visitor out of someone who has no particular
interest in what you do, and that doesn't normally spend time just hanging out
and doing nothing on the net. This is a big big accomplishment. And I think
you deserve a big round of applause for having made such a well-designed
site...

~~~
wensing
Thank you. That's incredible to hear and I hope we can continue to please.

We need to do more advanced metrics to capture this kind of behaviour
(cohorts, stickiness).

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lemonysnicket
keep going as long as possible as you can without VC -- in fact, you need to
plan to do this and not bank on getting funding.

out of curiosity, with $500k how will you "expand your coverage and services"
in a way that won't currently happen? Is there really a burning need for this
money, or will most just be salary for you to go full-time?

with the little info I know (and my few life experiences) why not built out
the viable revenue model while still in bootstrapping phase.

~~~
wensing
Yes, the money would be used to pay 2-3 full-time salaries plus office space
and possibly incentivize some other development directly beneficial to us.

The only urgency is the cyclical nature of the industry; we'd like to be in a
good position before the next season begins on June 1 2009.

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aschobel
Why not do convertible debt and not worry about your valuation?

[http://www.entrepreneur.com/money/financing/startupfinancing...](http://www.entrepreneur.com/money/financing/startupfinancingcolumnistasheeshadvani/article159520.html)

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rantfoil
There are a few varieties of convertible debt -- one is with a discount, and
another is with a pre-money cap.

Lots of investors will insist on pre-money cap at a reasonable seed valuation.
This basically means later when you do a series A or change of control, the
investor's money converts with the Series A, and they get reimbursed typically
with additional common stock that would simulate that valuation as if they did
equity.

Straight up convertible debt with only a discount actually does NOT align the
entrepreneur's goals with the investor... the investor gets a fixed percentage
discount off the Series A price, but what if they put in $100k at year 0 and
the company is now worth $10 million later at year 1 (rare but not unrealistic
example)? That $20k profit with the 20% discount is starting to look like an
awful move.

History lesson: Back in the day, notes were common just to really "bridge"
startups from seed to Series A. They were issued to startups by the same VC
that was already planning to do a Series A with them -- so the discount was
fine because the VC would set the valuation as well. It's different now
because your note investor (angel, friends or family) probably won't be the
pricing your next round -- more likely, the market will.

Now it just doesn't make sense for most investors since they can take a chance
on a team, do a note with a discount, and then see no significant return if
the team is successful and raises the next round at a much higher valuation.

This article is actually kind of messed up because it assumes that you priced
your round poorly, and then uses that as an explanation for why debt is good.
If everyone is doing their job, and you're planning for success, then do a
cap... or heck, do equity with YC's Series AA.

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maxklein
Personally, I would not go for capital on your site. I'd put some ads on
there, expand the service somewhat, and in a while you'll be making a bit of
money.

~~~
rantfoil
I disagree.

Raising $300k to $500k at a reasonable seed valuation makes a ton of sense for
them -- if you get the right angels who can actually help you with connections
and experience, the pie will get larger faster than the % of the pie you give
up to get them.

~~~
maxklein
Well, I won't argue. I've never lived in an area where I had to deal with
anything like hurricanes or other wierd weather, so I know very little about
that market and how much can actually be made from it.

~~~
steveplace
Just as a point of reference. The weather channel and its website was valued
around 3.5B at time of acquisition. This included a TV channel as well as some
other resources, but it's a market.

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puzzle-out
Value the company at $3million, raise the capital through two or three angels,
giving away 15% of equity in total. Involving VCs could mean problems exiting
later down the line. You don't mention if you came through YC - even if this
is not the case, the company sounds like a YC startup, and so its worth
targetting angel investors who have had successful exits with YC companies in
the past.

~~~
wensing
No, we did not come through YC. We did attend Startup School 2007 and we did
apply, but it wasn't to be.

Thanks for the advice; this is sort of what we have in mind.

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wensing
Thanks everyone for the insightful and helpful answers.

