Company interested in acquiring our startup. How do we calculate a valuation?
We are a bootstrapped company of three. Our primary competitor is interested in acquiring us (acqui-hire). How do we place a value on our startup? Since we don't have any revenues or a huge user base? The key value for the competitor is in getting us on board as employees for a two years. There aren't any investors either since we bootstrapped the business with just our own time.
Bootstrapped Company Acquisition Valuation Acqui Hire
-
Do they intend to do anything with the your company/product, or will they shut it down? – Nick Stevens 10 years ago
-
Answer to Nick's question is key here, but also share any info on the kind of traction your product had recently that got you the attention of the competitor - how long ago did you launch and what has the monthly/weekly growth rate has been. – Webbie 10 years ago
-
Also, consider holding onto any secret sauce info that might have contributed to your early success, if there is any, until you are confident you are on a path to reach an agreement. It's not uncommon for bigger companies to just shop around for competitive info under a pretense of acquiring. – Webbie 10 years ago
-
They'll likely shutdown or, at best, integrate the service into their offerings. In terms of our traction, all the accounts are on a free plan (we didn't get chance to launch a premium plan yet). The site launched less than 8 months ago. – Angela Williams 10 years ago
-
Sounds like they haven't expressed their intent clearly to you, which could mean they are interested in your service. I would certainly ask directly what they intent is for your service because in theory the fate of your product matters to you as creators. – Webbie 10 years ago
1 Answer
Ideally, you need to understand their intent for your service/product - is it of value to them and do they plan to monetize it or do they just want your team out as competition and truly only care about acqui-hire transaction. In any case, you did something right to get their attention.
Traction on a free product matters still - if you have a good record of users signing up for your free plan with say 20-30% growth month over month for the last few and good usage stats, then you can project your user base for say the rest of the year and then speculate on your ability to monetize them (convert 1-5% to a paid plan). This isn't likely to come up with a true value in very early stages, but a good exercise to go through anyway, in case the numbers end up looking good.
One way on putting a price on a pre-revenue product is adding up the hours of the co-founders it took to build the product, plus any marketing expenses (not so much formation/legal/etc.). This could be irrelevant in an acqui-hire transaction, but very relevant if product is getting a life of its own under the new owner.
A few things are still unclear to me and would make a difference:
1. Are you considering retaining ownership of the product/service and growing it on your own? What is your rock bottom price that would be Ok to compensate you for sweat equity? At the end of the day, the 3 of you need to be comfortable with the final number, so it's worth discussing.
2. Do you know and/or care what happens to your product post-acquisition? If I built something, it would be important to me as a record of my success and have some value, so I would ask what the plans are for the product as a part of the initial discussions.
Good Luck!
