00:00:10I wanted to answer your questions for
00:00:12one of my readers
00:00:13freestyles who owns a website called
00:00:15local arena and is having a hard time
00:00:17figuring out how much his business is
00:00:19worth because he wants to raise equity
00:00:22capital from getting an investor on
00:00:23board so a little bit of background on
00:00:25the business they have put around
00:00:27$15,000 worth of services into the
00:00:30business and in the generating revenue
00:00:33of about $1,200 per month so he’s
00:00:35figuring out how much is my business
00:00:36work and so he’s got a different
00:00:37valuation from investors in one of my
00:00:39opinion so I’ve been in the VC world
00:00:42before and we were raised in half a
00:00:43million 15 million dollars for companies
00:00:45and valuation is something that we
00:00:47always looked at and the cost based
00:00:50valuation rarely works so to say well I
00:00:53put fifteen thousand dollars into my
00:00:54business so it’s worth X amount it’s
00:00:57really hard to justify
00:00:58unless it’s an asset that they can go
00:01:00and sell so if you bought a piece of
00:01:02land you bought some equipment that they
00:01:04can sell easily has that tangible asset
00:01:07value then that’s we can look at cost
00:01:09base usually you gotta look at how much
00:01:11the company is going to be worth and you
00:01:13want to look at the revenue generated
00:01:14now if you see the business that is not
00:01:17the stock doesn’t have a lot of growth
00:01:18opportunity web-based businesses will
00:01:21typically sell for one two three times
00:01:23annual revenue so if you see it growing
00:01:26slowly then you might be looking in that
00:01:28range so figure out how much you’re
00:01:30gonna make for the year times up by one
00:01:33two three and that’s roughly what your
00:01:35company is going to be worth but if you
00:01:36see it as a high-growth opportunity so
00:01:38that pulp money of you’re making a month
00:01:39you see it you know
00:01:41100 times that then you want to
00:01:44basically look at those growth
00:01:46projections and that’s typically what a
00:01:48PC a venture capitalist or an angel will
00:01:50look at the look at for the next 5 years
00:01:52the one see what your projections are so
00:01:54you know this year how much gonna make
00:01:55next year the next year the next year
00:01:57the next year so 5 years out how much
00:01:59you gonna be making and what we do is
00:02:02usually discount that value back so look
00:02:04at how much going to be earning you know
00:02:06for those five years discount that back
00:02:09to today and you get a rough valuation
00:02:11of how much you’d be making you have to
00:02:13justify that somehow and a lot of times
00:02:16it’s just is projection right so it’s a
00:02:18guess but you want to have confidence in
00:02:20those numbers and the more confident you
00:02:21are and the better you can explain your
00:02:23rationale for getting to those numbers
00:02:25the more faith you have from an investor
00:02:28and the more likely you’ll get a better
00:02:29evaluation at the end of the day it’s
00:02:32still up to you and the investor to come
00:02:34up with that valuation the further along
00:02:37you are in your goals the
00:02:38betterevaluation you get the closer you
00:02:41are to startup usually the worst
00:02:43valuation you get so it’s great that you
00:02:45already have some customers you have
00:02:46some revenue coming in a couple things
00:02:49to think about if you want to get a
00:02:50better valuation if you know you need to
00:02:52raise $50,000 what you might say is I
00:02:55need $10,000 at this valuation and if I
00:03:00hit these certain milestones so maybe
00:03:02maybe a target to get $5,000 a month you
00:03:05say if I get to $5,000 a month then I
00:03:06need another $25,000 but at a better
00:03:09valuation then if we hit $15,000 a month
00:03:12that I need another $25,000 a better
00:03:15valuation or whatever is so you need
00:03:18$50,000 maybe you don’t need it all up
00:03:20front and you can phase it out over a
00:03:21period of time you eat milestones you
00:03:24agree with the investor every time you
00:03:26raise the capital it’s at a cheaper rate
00:03:28so you’re not giving up as much equity
00:03:29and you’re still getting
00:03:30money unique but it requires you to
00:03:33actually go and hit the targets that you
00:03:35set out so you better make sure you can
00:03:37actually hit those targets the last
00:03:39thing I would encourage you to think
00:03:41about when bringing on investor is don’t
00:03:42just go for somebody with money
00:03:44especially in this early stage if you’re
00:03:46looking for an angel investor you want
00:03:48somebody who can help you so somebody
00:03:50who has contacts who can introduce you
00:03:52to people who can get you out there and
00:03:54help promote your product beyond just
00:03:56somebody who gives you money and either
00:04:00you know completely stays away from the
00:04:01business or worse tries to interfere and
00:04:04doesn’t really know much about your
00:04:05business and starts to drag it down a
00:04:07little bit so think about who the person
00:04:10coming in is it’s a lot like getting
00:04:11married you got to really like the
00:04:13person they have to have a lot of
00:04:15potential to help you so really focus on
00:04:18who that person is before making the
00:04:19decision I hope that helped if you liked
00:04:22the video please give it a thumbs up and
00:04:24it also love to hear your thoughts and
00:04:25feedback if you want to leave a comment
00:04:27below the video and stay tuned for the
00:04:29next episode
00:04:37you
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