Product valuation
I have a complete CRM for a high growing industry and having 2 customers, one of them being a huge company. I also come with a background of almost 15 years in IT and a hard core ERP/CRM/Enterprise Solutions Guy and with an uncannny knack of designing products of any domain/any size/any time. The product was developed while I was working with few of my friends and the IP belongs to me completely.
I have been on my own for almost a year and half now during which time the product has been improved/refined a lot. I have not gone seriously/aggressively to market my product due to several constraints though the product is highly marketable and also proven.
Recently I have been approached by few companies to take over my product and also join their board to head their Enterprise Solutions Division.
I have the following situation:
- I need to value the Product and Sell the IP to the Company.
- The Buying Company will MArket/Sell the product in Indian /International Market. They will also try to integrate this with a reputed ERP to make it more acceptable in the International Market.
- What are the different methods to arrive at a fair valuations so that it becomes a Win-Win Situtation for both parties. The Product Pricing for Indian Market typically is around Rs.3 Lacs Per Installaton. The Total Market Size for The product is very huge.The Revenue Expected (estimated) for the first 3 years is around 5 Crores.
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I'm sorry to say that without divulging the specifics we can't do it for you. Plus this is a job best left for the banks – Graviton 14 years ago
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Let me know what more details do you need to provide a better solution/answer and I would be glad to provide it. – Taknev 14 years ago
2 Answers
Why not tell them you have a couple of potential takers ask them for their offers?
There are lots of different ways to value depending on how is buying (value to buyer, multiple of turnover/profit, assessment of potential value).
Then you would have a comparison and can try to negotiate or decide if you think too low. Also differentiate between cash offers and shares and look at non-compete/locking terms. If you want to sell, its only worth what someone is prepared to pay for it in the end.
On theory, There are multiple ways to valuate a Business, from Optimistic (Income Multiple) to pessimistic (Liquidation).
When planning to sell a business, I would prefer you have a Cost based Valuation (Breakdown of all expenses (include your time and material), and add a Multiplier for your base profit) for Negotiation purposes only. (Lost Salary + Perks + Interest + Depreciation + Tax) x2
And Need based valuation for making the proposal. Evaluate what's going to be a proper income stream (after those enterprise features are developed) and a Multiplier for future Income Capitalization.
Make sure, you are pricing on Buyers need based valuation for a win-win situation. (If this price is below you cost). Dont hesitate to shy away, If you can survive in the business waiting for another Buyer.
