How much is my new business worth??

February 7, 2008 2:11 PM

I am starting up a new business, and I am trying to put a value on it in order to "discuss numbers" with several people who have expressed a serious interest in investing in it.

In terms of a one year window, I know pretty close to exactly how much money it will cost to start up and operate the business. For the sake of argument, this number is $100,000.00.

In terms of how much much gross income I expect to take in for the first year, this could also be seen as $100,000.00, and obviously I would expect this number to grow over the next five years by as much as 20% each year.

In terms of investors, I want help with that first year $100,000.00 nut.

So, if some investor decides to kick in $50,000.00 as one has said he would, how much of the business should he get for that?

How much is this business worth as a brand new venture?

(If it matters, although the actual business is in Hong Kong - it is a distributorship - the investors, and ultimate owners are US based.

I appreciate any answers or advice!!!!

posted by extrabox to work & money (4 comments total)

how much of the business should he get for that?

This depends entirely on how badly you need the money and how much risk the lender is willing to take. Also, you have not given anyone enough information to make any kind of reasonable estimate for you.
posted by kuujjuarapik at 3:01 PM on February 7

I am not desperate for the investment money, it would just be a big help in the starting phase to have it. The investor is willing to take a lot of risk.

In terms of not providing enough information, tell me (as the potential investor) what additional information you would need? This is a brand new business, so I am not sure how much I can provide. However, I am meeting with the producer of the product I am distributing tomorrow, perhaps I can ask them for additional information based on their prior experience. As a product producer, they are very successful, and this is a market that does not have their product at this time.
posted by extrabox at 3:13 PM on February 7

Valuation is a tricky thing even for established businesses, for something that is only at the business plan stage I couldn't even guess how it would be done. But then I am not a business evaluator.

Some questions that investors would have:
What kind of market research have you done?
Do you have existing relationships with potential buyers?
How much you're getting the product for, how much you think you can sell it for, what is the cost of transport?
Are you setting up a corporation or just running a business in your name (ie can he and other creditors come after you personally, although you'll probably have to sign a whole bunch of personal guarantees anyway)?
Have you gone to traditional lenders already (banks, credit unions)?
posted by any portmanteau in a storm at 3:29 PM on February 7

Hi there. I've sat on multiple funding screening teams, and I can tell you from experience...

Your new business is worth squat.

All potential funders know that startup valuations are bullshit, and treat them accordingly. So make up a number that's on par with the made-up numbers for similar businesses. If you're lucky enough to sit in front of decision makers, be honest and self-effacing about valuation. They understand, and they appreciate the honesty.

Honestly.
posted by SlyBevel at 5:44 PM on February 7 [1 favorite]