We are a data and mobile app start-up based in the UK. We were in touch with a large brand initially about partnership but now they have said they would like to acquire us. However they want us to come up with business valuation. Our business is only a year old with small amount of traction, but strategically important to their business. They are the only bidders right now. How should we approach the negotiation and/or the initial valuation?
1. Value in the business is whatever the investor is willing to pay.
2. Since you are only a year old have them come to you with a valuation.
3. If they insist on you coming up with something. Estimate how much revenue you could bring in for them.
4. Based on the revenue do a multiplier of what companies in that industry are trading for. It could be 10X, 15X etc
5. Also make sure it is clear if it an all cash deal. Or blend of stock and cash.
The other way to do this is reach out to the competitors of the company you are dealing with to see if there is interest Create a bidding war is the main goal.