

Ask HN: valuing a non-existent company - anonyreliant

Hi guys. Occasional commenter posting anonymously. We are in an interesting situation and I would appreciate advice.<p>Our core business is in a niche area, but we have the opportunity to get some angel funding to enter a related but much larger market. We are planning to enter this market in the long run anyway. Moving now would provide some risk diversification, give us the cash to cover upfront costs and provide some miscellaneous administrative support. Also first mover advantage. The business model would be validated early, or fail early. We'll know in a few thousand dollars so it isn't really high risk.<p>We could take this step on our own, but we're bootstrapping and can't afford to split our resources to support two products. So the advantage is really avoiding a delay of at least six to eight months. There is no risk of dilution to our existing business, so that is not a concern.<p>The question is how to value an angel investment in a business like this where there is a small initial investment for market testing and an agreement for how to move forward if it makes sense. To me this means figuring out a reasonable value for our own contribution. But what is that? The costs of building the tech side from scratch? The opportunity cost of the people who need to manage/execute? Does the market value of our labor even matter if we are taking equity?<p>I understand that the answer is always "we need more details", but it is hard to do that without being overly specific. Apologies for being obtruse. I'd appreciate hearing about any relevant factors that came into play in any similar agreements any of you have run into.
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jaxn
I heard an Angel say "pick a number between 3 and 5 million and move on". I
think the point is that the investors need enough equity to have a good upside
(50x $) and the company needs to maintain enough equity to be motivated (the
majority).

So, if you are shooting for the fences, how much do you think the company can
be worth in 5 years? What percentage will give the angel 50x their investment?

I am looking forward to what others have to say.

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ksvs
Why not skirt the question and take the funding on a convertible note?

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andrewljohnson
Exactly.

I think a reasonable deal is a 30% discount, ~5% interest, and a big bonus if
there's never a valuation.

