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

https://news.ycombinator.com/item?id=1785448

by deltapoint • 16 years ago

13 19 16 years ago

news.ycombinator.com

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?

jacquesm3• 16 years ago

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.

anigbrowl3• 16 years ago

# 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.

devmonk• 16 years ago

Could you provide an example?

Yzupnick• 16 years ago

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?

anigbrowl3• 16 years ago

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.

pascalchristian• 16 years ago

So if I hire stupid and lazy programmers my valuation will approach infinity?

anigbrowl3• 16 years ago

Only if you have epic levels of credibility.

tptacek2• 16 years ago

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.

jacquesm3• 16 years ago

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).

staunch3• 16 years ago

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• 16 years ago

"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....

staunch3• 16 years ago

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.

jrockway• 16 years ago

$0.

webwright• 16 years ago

"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...

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.

tptacek2• 16 years ago

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

hiroprot• 16 years ago

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.

DirtyAndy• 16 years ago

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.

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

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