Forums: Discussions for entrepreneurs and small business.

I doubt that they substantiated a (slightly less than) $100 million valuation with monthly projections on a spread sheet. The people involved (on both sides) have a lot to do with how the deal came together.

Do you have a specific interest in this deal?

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Business Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com

Well I`m putting together a business plan for an Internet startup. The reason I`m interested in Twitter`s case is because I`m hoping to garner some investment capital, but in my case (as in Twitter`s) I believe a revenue model from the start would be disadvantageous. So my question is - how do I pitch for investment without a revenue model, the goal being a higher valuation instead? More specifically, how do I outline and represent this in a business plan? Because I know investors are looking for upwards of 5x ROI, and traditionally this is delivered via revenue and sales. But if I would not be generating any revenue/sales, would it be viable to use target valuations instead?

Two quick points

I wouldn`t project valuations in my business plan

The VC world looks for situations that can produce significantly greater than a 5X return

 

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Business Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com

Well, I think Robert is right. Including a valuation in a business plan for a start-up is somewhat atypical. Value always lies in the eye of the beholder, and since start-ups naturally lack the financial history and, in most cases, the assets based on which a professional valuation is typically done, this won’t do you any good.

As far as valuations for Facebook.com and the likes are concerned, please note again that value always lies in the eye of the beholder. VCs aren’t necessarily focused on realizing financial returns on their investments over a number of years. Sometimes, they look at deals from a strategic point of view, which they did in the case of Facebook.com.

I guess the point I’m trying to make is that if you have the right concept, mass-appeal, and strategic position in the marketplace, you may be able to get VC funding even though you have no clear path to becoming profitable.

This is rare though. There just aren’t that many MySpace.coms or FaceBook.coms around.

I hope this helps.


Mark




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Jackson Steiner
http://www.JacksonSteiner.com

Advanced Document Design for entrepreneurs, intermediaries, and the financial services industry.
http://www.Publications.FastVentures.com

Look, VCs typically have a pretty good perception of what concept or business model will be worth their while. While I agree with you that ultimately success is likely to be determined post investment, because all the resources come into play, VCs usually have a solid understanding of these dynamics beforehand.

If your plan involves positioning your company for an acquisition or merger instead of generating financial returns through operations, you will need to make a compelling argument as to why this strategy is more likely to pay off for investors.

Doing any kind of valuation for a development stage company is a waste of time and resources because there are no historical facts or assets to evaluate. So, basically if you’re going to tell investors that your company is worth $50 mill, why do you think they are going to believe you? And how about if they want to invest based on a $5 mill valuation. What are you going to do? Walk away?

I hope this helps.



Mark



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Jackson Steiner
http://www.JacksonSteiner.com

Advanced Document Design for entrepreneurs, intermediaries, and the financial services industry.
http://www.Publications.FastVentures.com