I have my startup going along nicely. It's a social app on mobile phones. Users start on boarding and using it. I have invested quite a lot of cash to get to this point. Say 100k for the sake of the discussion. The app doesn't bring any cash but has a great potential. I'm not worried about that at this point. If and when I will need investors what and how should invaluable the company? If it is based on income then zero. Based on potential then 3m $... How does that work this seems random and based on luck.. Thanks
I have approached valuation many times, in many different ways, both for my consulting business and when I've raised capital for my startups. The short answer: it is based on the future earnings potential of your business, and in your case, an investors' belief in your vision/potential. Your story to support a valuation, without any revenue, will be built on reasonable projections and analogous evidence, and then discounted by the investor for risk. Every valuation exercise is unique, but the basics remain on how much risk they will assume for an expected return (IRR). If you would like me to help you quickly build a valuation story for your startup, or you have other questions, please give me a call.