

Ask YC: What is an appropriate valuation for a startup that is brand new? - deltapoint

If there is just an idea and a bit of research, what is a fair valuation for an angel investor to invest in a startup at?
======
jacquesm
That's an unanswerable question the way you put it.

There is absolutely no information even about size of the potential market,
business model, competitive arena, price points, required capital investment
and so on.

You will have to do a bunch of homework (such as a minimalist business plan)
to give you an idea of what you expect to do with your business, then you can
go and put a value on it.

Garbage in -> garbage out.

YC has turned the angel investor game in to a horse race, they bet on the
teams, to a much lesser extent on the ideas.

'conventional' angel investors will likely not be able to evaluate you (and
possible co-founders) as a team, but they may be able to understand the
business proposition behind your idea once you can explain it to them.

That will be central to the valuation, as well as your expertise and skill
relative to what is needed to develop it and take it to market.

A couple of weeks of hard work should get you to the point where you will be
able to answer your own question, after all, you're the one that's being
diluted so you should know the value of what you have better than anybody.

------
tptacek
Somewhere between $0 and $20,000, probably much closer to $0; depends on your
credentials, the intuitive strength of your idea, and how hard it is to build.

You're asking the wrong question, though. Regardless of whether you can get an
investment (and sure, you can always scrounge up $2000 from somewhere), _this
is the worst conceivable time for you to try to take an investment_. You are
optimizing for terms will ultimately cripple your business.

Build something first.

~~~
jacquesm
Don't rule out the possibility that it is a bad idea that looks good (value <
$0, you will lose whatever money you throw at it).

Or an absolutely fantastic one (probably still < $20,000).

------
DirtyAndy
Question: Are you looking for an angel investor, or has one approached you?

If you are looking for one and have no contacts then I don't think there is
really an answer to your question, but somewhere close to zero.

However if someone has approached you then that is a different question. I've
talked about ideas in the past and had people ask me about investment. The way
I value that is if I am going to work the next five years at startup levels of
stress and hours I value my income at US$200,000 a year. So five years
(commitment I would assess putting into it) x 200K is $1,000,000. Then it is
up the investor as to what percentage they are after. So 10% means I would
want them to invest around $100K.

That all needs to be balanced by your level of experience, financial
expectations, how much you need the money - and how likely you perceive the
potential to accept the concept.

------
hiroprot
It depends primarily on the track record of the founding team. If the team has
a history of being able to execute and the idea is promising, I'd say you can
raise money on valuations between $1-3 million pre with just a powerpoint and
some background research.

If the team has no track record, it will be much, much harder.

------
staunch
Others are saying you can't place a value. I don't buy that at all. People do
it every day. The people that are _truly_ capable of building a successful
business are few and far between. An investor is lucky to find someone worth
betting on.

From your perspective taking investment is a serious commitment. You're
promising to to spend the next N years dedicating yourself to making the
company successful. That's worth quite a bit if you're at all likely to
succeed.

Just ask yourself how much equity would you sell and for what price?

I think a sane ballpark is something like 10-15% for $100-200k, 20-25% for
$500k, or 30-35% for $1M. But again, that's just a ballpark.

~~~
jerf
"People" aren't saying you can't place a value on it. "People" are saying you
can't place a value on it based on 121 characters of text, less than half of
which even describes the startup in question. If you rephrase the question as
"What is this thing in my hand worth?" you haven't changed _all_ that much....

~~~
staunch
You can make some common assumptions:

1) There are (or will be) 2 founders that are prepared to dedicate years to
the venture

2) They're able to convince an investor to put money in (otherwise valuation
won't matter).

To me that's enough to justify the ballpark valuations I gave. You don't need
to know their specific market, product, or anything else.

~~~
jacquesm
You can't put a value on a company that is based on an unknown idea with
research by an unknown individual with unknown skills.

Sorry but no. I don't care if the founders are prepared to dedicate the rest
of their lives to it (assuming it is founders and not founder), after all you
could dedicate your life to making a better mousetrap but for me that would be
worth $0.

The guy is basically asking how much his time is worth without giving his
qualifications for all you know he's flipping burgers at McD's.

My brother in law came up with an idea for a better garbage can, not
immediately obvious and not in production anywhere, after some 'research'.

What is it worth?

For me it's worth $0. He has no background in manufacturing, sales, marketing
or design, he does not have anybody that would dedicate his life to it, and
he's not prepared to mortgage his house and let go of his day-job to pursue
it. So it won't be going anywhere.

I don't see this guy making any statements about what he will bring to the
table either other than the idea, not even implicit ones, no statements about
commitment or anything.

So, more info is needed. Both about the idea and the OP (track record would
help but likely none or he wouldn't be asking the question).

No realistic valuation ever rested on this little info.

Sure 'angel' investments fall in to a certain range, say 0 to 10% of the stock
for 0 to $1M. But that's like saying the sun will be shining tomorrow, that's
not an answer to the question.

~~~
staunch
It seems like you're being intentionally obtuse. He asked a general question
about startup valuations. A general answer is perfectly possible. Whatever...

------
webwright
"Fair"? There's nothing fair about valuing a company at millions of dollars
when it's just a few guys and an idea. It's about getting the right amount of
investment while not selling too much of the company (but selling enough to
make it with the investors time).

Check: [http://www.avc.com/a_vc/2010/10/employee-equity-
dilution.htm...](http://www.avc.com/a_vc/2010/10/employee-equity-
dilution.html)

Because you've offered zero information to dial it in, $500k to $4m post-money
as a wag. Depends on team, if you're in the valley, and your ability to create
a market for your stock.

~~~
tptacek
You're scaling this to typical SF angel investment sizes, right? I got the
impression that this was, like, one guy.

------
jrockway
$0.

------
anigbrowl
# of programmers * months to MVP * credibility * $10k.

Even a mockup is better than nothing, but you'd do well to find your own tech
partner.

~~~
Yzupnick
So if it takes a large number of programmers a very long time to produce a
product, the valuation is higher than a small amount of programmers creating a
viable product quickly?

~~~
anigbrowl
It would need to be :-)

What I'm driving at is that some ideas you can do a minimum viable product
very quickly, other more ambitious ones might need months of work - I was
trying to avoid making assumptions about what this unknown idea might be, and
throw the focus on potential cost to launch. The question is so open-ended
that it _sounds_ like an interesting idea without any financials yet; so I'm
trying to estimate the cost of satisfying my curiosity about whether or not a
market exists for whatever-it-is.

A webapp that solves a particular problem by matching buyers and sellers might
need only a week of work to begin being useful. But not all ideas are so
straightforward - for all I know s/he might be imagining the next evolution of
the spreadsheet.

