The art of company valuation

The art of company valuation

One of the most common question we get is “How do we valuate our idea or business” or “How can I know if this company is correctly evaluated”.

How to correctly assess the value of a company is virtually impossible. A good valuation to one person might be seen as hideous by another. FundedByMe will never judge the valuation of any of the companies seeking capital through its system, however, we can try and educate our visitors, enabling them to make smarter decisions.

Rule No 1.

The correct market price is what the market is willing to pay. This does not mean that the market is correct in its assumption regarding future returns or growth in asset values. The well-known US investor Warren Buffett put it correctly when he stated: “Price is what you pay. Value is what you get.”

So, it is hard to judge at the time of investment whether or not you will see your fortune melt away or grow at a tremendous rate.

Rule No 2.

Remember that the offerings on FundedByMe has been priced by the seller, not through a market-driven process. Even though the so-called pre-round exists for the reason to let prospective raisers of funds get feedback from potential investors, there is no guarantee that insights gained through the pre-round results in a correctly priced offering.

Rule No 3.

Always remember why you invest. At FundedByMe we like to talk about Value From Investment (VFI), which is all those things you get out of your investment. Financial returns can be one, but it might also be the joy of supporting an individual you like, a context to exist in, a good story to tell your friends, products you like, possible discounts, etc.

Rule No 4.

You are solely responsible for any investment decisions. It is risky to invest in unlisted stock. You might never see your money again and it can be hard – not to say impossible – to sell stock in such companies. But then again, some will make it big and pay back handsomely.

Rule No 5.

Be prepared to loose everything.

That being said, the question remains how to correctly assess the value the entrepreneur says his or her company has. Rest assured that the entrepreneurs are optimistic – that is why they became entrepreneurs in the first place – but sometimes their expectations seem sky-high.

Please bear in mind that many of the companies on FundedByMe seek funds in order to grow, sometimes very aggressively. High growth affects the future value of a company very positively.

Other factors, besides growth, you should look for are:

–       Cash flow

–       Margins

–       Strategic position and potential in their sector

–       The existence of patents or trademarks (can be very important)

–       The team (most early stage investors would say that this the only thing they are looking for)

–       Realistic expansion plans

–       Competition

–       Risks they are facing

–       Traction (high growth in user base, increasing sales, press reports, etc.)

Please also think over what you, as an individual, can bring to the table. After all, crowdfunding is only partly about the funds a company can raise. It is also about the networks the companies can amass and as an investor you are part of that network.

Your own individual experience from a sector or a specific type of investment might guide you well but please also be an active information seeker, for instance through the Internet, but also by asking other FundedByMe investors. Crowdfunding is, after all, all about the crowd.

If you want to drill down into specific valuation models, there is a vast territory to cover and we at FundedByMe will not recommend a specific one. Rather, read books, blogs and news reports. One good book to start with is “The Financial Times Guide to Valuation”:

http://www.amazon.co.uk/Financial-Times-Corporate-Valuation-Guides/dp/0273729101/ref=sr_1_3?s=books&ie=UTF8&qid=1367232773&sr=1-3&keywords=The+Financial+Times+Guide+to+Valuation

It has been written by David Frykman and Jakob Tolleryd, who themselves are Internet entrepreneurs and investors.

Please also note that valuations differ enormously from sector to sector and from time to time. To get a hunch of what the situation is like right now you can always try and compare key numbers with those of listed companies in the same sector.

Daniel Daboczy – FundedByMe

FundedByMe named one of the hottest Swedish Startups

FundedByMe named one of the hottest Swedish Startups

Swedish weekly publication, Veckans Affärrer, has just released their top 24 list of Swedish startups and we are thrilled to be included!

FundedByMe's write up as one of the Top 24 Swedish startups for Veckans AffärerRoughly translated, this article says:

A startup from 2011 that is already in version 2.0. Founder Daniel Daboczy has a background in the art world and lacked the ability to fund cultural and entrepreneurial projects with small sums from many. One famous project is hamburger bar Flippin’ Burgers who sold burger gift cards while the restaurant concept was developed. Now, the business is giving entrepreneurs the opportunity to raise equity capital from business angels.

 

Building a Stockholm startup eco-system

Sweden ranks number one in the world’s first ever Web Index. Designed and produced by the World Wide Web Foundation, the Web Index is the world’s first multi-dimensional measure of the Web’s growth, utility and impact on people and nations. This connectivity, together with a global mindset, have made Sweden the birthplace of an impressive list of Stockholm startup names like SpotifyWrappSkypeiZettleRebtelPricerunner – and of course FundedByMe.

Although many great companies originate from Stockholm it is still lacking a sustainable ecosystem for startups. Many Stockholm startups have left the country for different reasons. Skype quickly moved to Luxembourg and Soundcloud found a new haven in Berlin almost directly after they were founded.

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Even though tying employment to options leads to exorbitant taxes this is not the sole reason for successful Stockholm startups to leave. As this factor is key into securing talent to work with, many more factors are driving these decisions. Stockholm has a serious housing problem (especially when you work for a lean startup), cost of living is relatively high and therefore Stockholm does not attract a lot of startups from abroad.

Why would we pursue the same startup culture as one might experience in New York? Because it is important. It took us a while to figure out what living and working in different startup hubs would do to us, but after a few meetups and lunches with fellow entrepreneurs it all became clear. Low-key get togethers made us look at our work from a entirely new perspective. We were amazed by how easy it was to meet people, and more so how easy people want to talk about their experiences. People work hard to become part of the tech community, it is not easy .. but something good is worth working for.

We can bring this startup culture to the Nordics! At FundedByMe we try hard to bring people together and love to see how this influences businesses and decision making processes. Our monthly meetups are a great example of this. We can give you a lot of advice, but in regards to this we’d just like to say: “Meet People”

Join our Meetup group here and join us in bringing people together!

Why did we pivot into equity crowdfunding?

Why did we pivot into equity crowdfunding?

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The transformation FundedByMe as a service provider have undergone is quite heavy. Classic crowdfunding and equity crowdfunding are both based on the same principles – but in fact hardly the same.

Both cater to the basic need that people (the crowd) rather are participants then end consumers and want to be part of cool new ideas and companies. And also because creative and amazing entrepreneurs are having a hard time in  this recession to reach and convince those who might invest.

Therefore a lot of people are interested in the reasons why we left a profitable model and took the risk to pivot towards equity crowdfunding. There are many reasons for this, but let’s start with 5.

1. As genuine crowdfund ninja’s we, of course, have backed our fair share of awesome projects and felt great each and every time we received a new, innovative, product to play around with. Although we still are very much into being early-adapters we are convinced that there is one thing even more cool than this …. partial ownership in cool companies, won’t you agree?

2. Many amazing projects have, over time, had problems living up to the ambitious promises made in their campaign. This has had a bad effect on the industry’s credibility and made many platforms adjust there TOS. If you have pledged your cash for a crowdfunded project you often need to be very patient, however with equity crowdfunding these problems are not relevant as there is no shipping and production involved in the process.

3. A year ago we carefully started dropping the words ‘equity crowdfunding’ in different conversations we had with people. Together with the signals we got from our users (we did not talk with regarding this) we indicated that approximately 80% of all people were interested in the idea of owning a small part in a company.

4. Creating jobs. Over the last decade many people have adjusted their dreams and directions, no longer dreaming of careers in large multinationals but rather for small creative agencies and products. The economy is on its way up again and the crisis has left a lot of people thinking about their own endeavours as well. By allowing more startups to raise money, improve their chances of survival, we will ultimately help create jobs.

5. Although we have had the pleasure to work with some amazing creative projects over the past 18 months there are simply put too many crowdfunding platforms and too little awesome projects to serve them all. While all rules and regulations in Europe were already in place it made perfect sense to take this obvious step after we completed some extensive tests in stealth mode. Even though more equity platforms will see the light of day it takes a lot of experience, knowledge and effort to build a complex service like this.

FundedByMe re-launches Equity Crowdfunding

FundedByMe Equity

Just a few days ago, after weeks of coding and testing, we re-launched our site. The most obvious difference is our shifted focus towards Equity Crowdfunding, catering to future startups with a very powerful tool to manage campaigns, shareholders and legal matters.

Crowdfunding has been around for a while, centuries actually, but will only in 2013 really take-off into super overdrive. It is probably one of the business models which makes the most sense, where some people might have plenty of money left to spend on small investments others are full of great ideas and in desperate need of funding. Puzzling is much easier with a lot of small pieces.

Where we live in a society which is rapidly moving away from the traditional corporate structures and in which we more and more started embracing small and young initiatives many entrepreneurs have a hard time landing a serious round of funding as there are simply not enough traditional investors to fill the need! This however should not be a reason for stopping this movement away from the traditional corporation, and that’s why equity crowdfunding is an essential part in this revolution.

There are other reasons to turn to equity crowdfunding as well. Being a young and small company it is often hard to own all knowledge needed to start and grow your company, many different small investors however allow you to take on a wide range of talent in all fields where you are missing out initially.

We have run a first campaign with Virtuous Vodka, a brand who has chosen to use FundedByMe for two main reasons:

1) Get market validation and turn every small investor into a brand ambassador
2) to source all the knowledge which all investors own together, ranging from online marketing to development.