hi I’m Evan Carmichael and in this video
I wanted to answer your questions for
one of my readers
freestyles who owns a website called
local arena and is having a hard time
figuring out how much his business is
worth because he wants to raise equity
capital from getting an investor on
board so a little bit of background on
the business they have put around
$15,000 worth of services into the
business and in the generating revenue
of about $1,200 per month so he’s
figuring out how much is my business
work and so he’s got a different
valuation from investors in one of my
opinion so I’ve been in the VC world
before and we were raised in half a
million 15 million dollars for companies
and valuation is something that we
always looked at and the cost based
valuation rarely works so to say well I
put fifteen thousand dollars into my
business so it’s worth X amount it’s
really hard to justify
unless it’s an asset that they can go
and sell so if you bought a piece of
land you bought some equipment that they
can sell easily has that tangible asset
value then that’s we can look at cost
base usually you gotta look at how much
the company is going to be worth and you
want to look at the revenue generated
now if you see the business that is not
the stock doesn’t have a lot of growth
opportunity web-based businesses will
typically sell for one two three times
annual revenue so if you see it growing
slowly then you might be looking in that
range so figure out how much you’re
gonna make for the year times up by one
two three and that’s roughly what your
company is going to be worth but if you
see it as a high-growth opportunity so
that pulp money of you’re making a month
you see it you know
100 times that then you want to
basically look at those growth
projections and that’s typically what a
PC a venture capitalist or an angel will
look at the look at for the next 5 years
the one see what your projections are so
you know this year how much gonna make
next year the next year the next year
the next year so 5 years out how much
you gonna be making and what we do is
usually discount that value back so look
at how much going to be earning you know
for those five years discount that back
to today and you get a rough valuation
of how much you’d be making you have to
justify that somehow and a lot of times
it’s just is projection right so it’s a
guess but you want to have confidence in
those numbers and the more confident you
are and the better you can explain your
rationale for getting to those numbers
the more faith you have from an investor
and the more likely you’ll get a better
evaluation at the end of the day it’s
still up to you and the investor to come
up with that valuation the further along
you are in your goals the
betterevaluation you get the closer you
are to startup usually the worst
valuation you get so it’s great that you
already have some customers you have
some revenue coming in a couple things
to think about if you want to get a
better valuation if you know you need to
raise $50,000 what you might say is I
need $10,000 at this valuation and if I
hit these certain milestones so maybe
maybe a target to get $5,000 a month you
say if I get to $5,000 a month then I
need another $25,000 but at a better
valuation then if we hit $15,000 a month
that I need another $25,000 a better
valuation or whatever is so you need
$50,000 maybe you don’t need it all up
front and you can phase it out over a
period of time you eat milestones you
agree with the investor every time you
raise the capital it’s at a cheaper rate
so you’re not giving up as much equity
and you’re still getting
money unique but it requires you to
actually go and hit the targets that you
set out so you better make sure you can
actually hit those targets the last
thing I would encourage you to think
about when bringing on investor is don’t
just go for somebody with money
especially in this early stage if you’re
looking for an angel investor you want
somebody who can help you so somebody
who has contacts who can introduce you
to people who can get you out there and
help promote your product beyond just
somebody who gives you money and either
you know completely stays away from the
business or worse tries to interfere and
doesn’t really know much about your
business and starts to drag it down a
little bit so think about who the person
coming in is it’s a lot like getting
married you got to really like the
person they have to have a lot of
potential to help you so really focus on
who that person is before making the
decision I hope that helped if you liked
the video please give it a thumbs up and
it also love to hear your thoughts and
feedback if you want to leave a comment
below the video and stay tuned for the
next episode
you
I wanted to answer your questions for
one of my readers
freestyles who owns a website called
local arena and is having a hard time
figuring out how much his business is
worth because he wants to raise equity
capital from getting an investor on
board so a little bit of background on
the business they have put around
$15,000 worth of services into the
business and in the generating revenue
of about $1,200 per month so he’s
figuring out how much is my business
work and so he’s got a different
valuation from investors in one of my
opinion so I’ve been in the VC world
before and we were raised in half a
million 15 million dollars for companies
and valuation is something that we
always looked at and the cost based
valuation rarely works so to say well I
put fifteen thousand dollars into my
business so it’s worth X amount it’s
really hard to justify
unless it’s an asset that they can go
and sell so if you bought a piece of
land you bought some equipment that they
can sell easily has that tangible asset
value then that’s we can look at cost
base usually you gotta look at how much
the company is going to be worth and you
want to look at the revenue generated
now if you see the business that is not
the stock doesn’t have a lot of growth
opportunity web-based businesses will
typically sell for one two three times
annual revenue so if you see it growing
slowly then you might be looking in that
range so figure out how much you’re
gonna make for the year times up by one
two three and that’s roughly what your
company is going to be worth but if you
see it as a high-growth opportunity so
that pulp money of you’re making a month
you see it you know
100 times that then you want to
basically look at those growth
projections and that’s typically what a
PC a venture capitalist or an angel will
look at the look at for the next 5 years
the one see what your projections are so
you know this year how much gonna make
next year the next year the next year
the next year so 5 years out how much
you gonna be making and what we do is
usually discount that value back so look
at how much going to be earning you know
for those five years discount that back
to today and you get a rough valuation
of how much you’d be making you have to
justify that somehow and a lot of times
it’s just is projection right so it’s a
guess but you want to have confidence in
those numbers and the more confident you
are and the better you can explain your
rationale for getting to those numbers
the more faith you have from an investor
and the more likely you’ll get a better
evaluation at the end of the day it’s
still up to you and the investor to come
up with that valuation the further along
you are in your goals the
betterevaluation you get the closer you
are to startup usually the worst
valuation you get so it’s great that you
already have some customers you have
some revenue coming in a couple things
to think about if you want to get a
better valuation if you know you need to
raise $50,000 what you might say is I
need $10,000 at this valuation and if I
hit these certain milestones so maybe
maybe a target to get $5,000 a month you
say if I get to $5,000 a month then I
need another $25,000 but at a better
valuation then if we hit $15,000 a month
that I need another $25,000 a better
valuation or whatever is so you need
$50,000 maybe you don’t need it all up
front and you can phase it out over a
period of time you eat milestones you
agree with the investor every time you
raise the capital it’s at a cheaper rate
so you’re not giving up as much equity
and you’re still getting
money unique but it requires you to
actually go and hit the targets that you
set out so you better make sure you can
actually hit those targets the last
thing I would encourage you to think
about when bringing on investor is don’t
just go for somebody with money
especially in this early stage if you’re
looking for an angel investor you want
somebody who can help you so somebody
who has contacts who can introduce you
to people who can get you out there and
help promote your product beyond just
somebody who gives you money and either
you know completely stays away from the
business or worse tries to interfere and
doesn’t really know much about your
business and starts to drag it down a
little bit so think about who the person
coming in is it’s a lot like getting
married you got to really like the
person they have to have a lot of
potential to help you so really focus on
who that person is before making the
decision I hope that helped if you liked
the video please give it a thumbs up and
it also love to hear your thoughts and
feedback if you want to leave a comment
below the video and stay tuned for the
next episode
you
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