Startups Stack Exchange Archive

Return rate for a startup

I am browsing campaigns on online stock exchange Seedrs and I can see following investment sought, equity offered pairs.

if I scale them all to 10%, then the following investment sough I can see

Why is this big difference? Are these values reflects reality, these are huge amount of money. Why for the same 10% someone wants £70,000, other £3,100,000?

If I want to seek investment i.e. only £1000, how many shares should I offer though Seeders? I do not need too much money, because time to time when next milestone come, I want to restart the process.

The reason why I only need £1000 because I want raise money for the next milestone, for one month. In Hungary living cost are low, from £1000 I can live a comfortable life (£500) and even I can pay salary for two IT intern (2 * £250). Month to month planning has the advantage that investor can get more insight how things works.

Actually I think a lot project like Tinder, airbnb, are not so complicate, as much money they burn. Implementing an app like Tinder should not last longer then 1-2 month for an experienced developer.

Answer 5361

What you are seeing here is the valuation of the company. Investors have different methods to assess the current value of your company. This would include the present value of the future earnings (sales forecasts etc), value of the intellectual properties like patents etc. An investor has to pay a higher price for a company with a higher valuation than a company with a lower valuation to get the same percentage of ownership. Incidentally, investors like to low ball you on the valuation, so some entrepreneurs find independent assessors (usually consultants) to get a valuation on their own before they go for investment rounds so they know what the company is actually worth.

The tangible/ conventional factors that affect the valuation include:

  1. Having a good financial forecast showing a good return on the investment is a must.
  2. The intellectual property
  3. The quality of the team - education, track record, experience in industry etc
  4. The level of traction to date - product development, customer development etc
  5. The assets and book value of the company

The intangible factors can include

  1. The attractiveness of the idea - If the entrepreneur and the investor realize that the idea is new and has potential in a rapidly emerging industry then the entrepreneur can bargain higher.
  2. The feel good factor - How much the investor likes the entrepreneur or how well recommended the entrepreneur is by peers.
  3. Hype and buzz - Some startups engage the media to bring attention to their product and service. Investors who buy into the hype maybe willing to pay more to be in on the venture.

As Denis suggested, the best place to find a small investment would be from friends and family. Next would be small business development grants and no interest loans offered by the government bodies. One of the advantages of using F&F investments in the early stage is that you can use it to get traction and if you do require VC funding later, you can get a higher valuation and wouldn’t loose as much equity for the same investment.

Answer 5359

Why do startups want different amounts for the same percent?

Ten percent of a dollar is ten cents, but ten percent of ten dollars is one dollar. More to the point, the cost of ten percent of Google should not be the same as Apple.

If I want to seek investment i.e. only £1000, how many shares should I offer though Seeders?

Honestly, if you’re looking to raising only £1000 then I’d suggest looking for another way to do this since in my opinion this makes no sense.

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