You have a great idea, and you have built a business model and started working on a prototype. The days are long and fun but your funds are getting drained – and it is only a question of time before your significant other tells you to “cut your hair and get a normal job!” – or to concentrate on the dayjob if you have one. If this is your life, you have probably started thinking about the value of your idea or project – how do I know if what I do will seem valuable to angel investors, government incentives or down the line venture capital funds?
Valuing early-phase startups is hard – and there is really no other real value than whatever someone offers you to buy your company for. But on the way to pitching and discussing equity partners, you should be thinking about what makes people think your company is worth something.
Let us start with your team. Before you have cash flow and an impressive product, your team is everything. These things are credibliity enhancers:
People with PhD’s
People with significant marketing and business development experience
People with a history of making other startups work
International business experience
You should have as many of these credibilty enhancers on your team as possible – if only as “advisors” that help you with developing your business model – e.g. building your business model canvas. The perspectives of various experts should be combined into a great business plan – not merely a business idea.
And talking about plans – getting customers to validate what you think is the next big thing. If you don’t have customers, you can get people to review your ideas, and to test your prototypes. Having a big well-known player state “this is really something new that would help people in our business” is worth a lot to people who are considering investing in your fimrm.
Other things that matter are market related. Are you approaching a very large market? Is your product satisfying an unmet demand, or is it more of a “nice-to-have” sort of thing? Is your market growing rapidly (say AI integration products) or is it more moderate in growth prospects (brick and mortar retail)?
Looking at these questions makes it possible to sort your idea and ability to deliver into “potentially a billion dollar venture”, “at best on the level with being a part-time Ûber driver”, or something in between. Doing a quick assessment will help you know what to work on before pitching, and sorting your activities so that you focus on building percieved value before asking for equity investment.
Bizplan.one has a tool for coarse valuation of early-phase startups and business ideas. Sign up and try it today!