Post a new topic
    8 Replies Latest reply on Aug 6, 2008 3:23 PM by Adducent

    Valuation/Range of Value

    gamingkrib Newbie
      Great Forum,

      We are a start up company that has exhausted seed capital and plan explore early stage VC funding.
      We will pursue class S Corp as requested, though would like to stay LLC.
      Our team management and Board are Industry experts, along with advisors, but none are business leaders. We are still looking to fill that need, and a VC will bring aboard a virtual CFO for guidance, as expected.

      My question is about a request in the executive summary submission regarding Valuation and Range of Value.
      We have no assets or liabilities, or now product since we develop web based applications. All we have are salaries for the prior ten months and a few servers.
      Looking at market trends with our design, value appears very high for a few reasons:

      1. Need
      2. Limited competition, if any (other than users time)
      3. Compliments other markets which are very high in sales, and can be adjusted with trends.
      4. innovative in design and scope
      5. Strong Management and Board (SVP from Adobe, CIO from NY TIMES)

      Our build requires subscription base. Comparing to other "game,education, parenting sites" with simaler design, most leaders are at 14 million users (www.brainpop.com) and http://www.maplestory.com/ has 46MM users.
      We feel, 3 MM users is a nice figure. But, profit is at 220-230MM ish. (9.95 each) excluding contracts with schools, B2b or ads (I worked for Google and can generate a large base as well if needed).
      VC will question this #, and how sought. Again, we have marketeers and Board members who have developed simpler #'s with other endevours (even Oprah has interest in us)...but how does one put a # on this particular project?
      How can we come up with a realistic #? and what is a "range of value"?
      Thanks for any input.
      No accountants or lawyers yet, but planned.

       

      ----

       

      Michael Vitelli - CEO | http://www.gamingkrib.com/

       

      mvitelli@gamingkrib.com 727-947-7005

       

      Reinventing Learning in the Digital World
        • Re: Valuation/Range of Value
          LUCKIEST Guide
          Valuation/Range of Value, Welcome Michael

          You are a start up company. Do you know about SCORE??

          SCORE is FREE both online and in person and can help.
          • Re: Valuation/Range of Value
            Tracker

            Michael,

             


            I'm not sure why you would want to switch into an "S" corporation. If you plan to raise capital, you probably should be a "C" corporation. "S" corps is fine for small professional service type companies but have limitations on number of shareholders and other business structure that "C" corps does not. A "C" corp. should probably be used if you are expecting significant growth and plan to raise a lot of capital from investors. From the sound of it, I think you are at a stage where you need to bring in an experienced business attorney and CPA to discuss these things and give you professional guidance before you move in a direction that you have to change later on.

             


            If you have the type of interest and strength of Management & Board, you mentioned (Oprah, SVP Adobe, and CIO NY Times ... your Google experience) ... then don't dilute or weaken it by making miss-steps early on. Get competent professional help to structure your business appropriately and to set a good foundation for the business going forward. This is very important.

             


            It appears you have a lot of intangible, intellectual property and those can be hard to put a valuation on when you are a pre-revenue company. If you have comparables to existing businesses in your space those can be used as an example of value for your business if you are able to execute your business plan. A CPA or business valuation expert can probably help you come up with a valuation range but keep in mind that is a hypothetical and valuation is in the "eye of the beholder" ... by that I mean when you sit down with a VC, they may have their own ideas of valuation range for your company.

             


            Unless you have a compelling reason to focus on establishing that valuation range right now, it is probably more important to put together your business plan including 3 to 5 years pro forma financials and to show your break-even point and projected cash flow. Those numbers will show how your "intangibles" translate into "tangible" income and profits. Then another valuation based on the business operations can be extrapolated using a multiple on earnings from what you project for net income or EBITDA over time.

             


            If you are in the planning stage for talking with VC's - based on a lot of experience, here are the 5 most important things they are going to look for in your business plan and to discuss with you and your team:

             


            1) That The Company Has Focus

             

            2) That The Market Has Potential

             

            3) That The Company Has Specific Solutions For Their Market

             

            4) That Customer's Show A Readiness & Willingness To Buy From The Company

             

            5) That The Company's Dynamics Are Strong

             


            So make sure that you address them well in your plan and in your discussions.

             


            Also, on this site, in the "Shop Talk" forum you'll find my post on "How To Write A Business Plan That Really Gets Noticed". If you get a chance you might want to read it since it continues on about the 5 important things investors want to know about your business and how to use that as a guide to create your plan.

             


            I hope the above helps you. If you have any questions feel free to post them here or contact me directly. Good luck with your business plans.

             


            Dennis Lowery

             

            Adducent, Inc.
              • Re: Valuation/Range of Value
                gamingkrib Newbie
                Thank you Dennis, very informative, although still a little lost since so many sites give us different advice and options...yes, a C" i meant,sorry...I come from University setting, not familar with all this stuff yet and need to learn a bit more before bringing on lawyers and CPA's which we are looking at....and now confused with exec. summary and business plan submission, from what I understand submission of exec sum to VC's/angels comes first? then later BP.
                To be honest we are just exploring this avenue, might just take it all the way with private...
                I been looking at few posts here, alot of "silicon valley" expert post's...along with
                http://www.ycombinator.com/about.html ,thier forum specially http://news.ycombinator.com/, and thier model (which is getting alot of press)
                and paul insights...
                http://paulgraham.com/startupfunding.html

                Which gets us more confused ...again a CP and lawyer will be helpful.
                In time.
                Still building..
                  • Re: Valuation/Range of Value
                    Tracker
                    You're welcome. There is a lot of information and different advice from different perspectives available from many sources. The 'trick' as you are finding out is what or which of it is relevant to you and what you want to accomplish. But sometimes your start boils down to basics: getting your business down on paper in the right way with it conveying the right message for your business and talking with an experienced attorney and CPA about forming the proper legal and financial structure for the business.

                    Re: Exec Summ's and business plans. Usually the Executive Summary is a section of your plan that is built once the whole plan is complete ... and most VC's want to see the Executive Summary and not the complete business plan. Actually many VC's are going towards entrepreneurs sending them a concise PowerPoint with bulleted info so that they can quickly grasp the thrust of their business idea/opportunity to get a quick read on whether it hits their "high points" of interest.

                    Dennis Lowery
                    Adducent
                    1 of 1 people found this helpful