Starting A Company Without Raising Money Pt. 2

I got some good feedback on my question posted yesterday.

Ed Costello:

This is just my opinion and has no factual support whatsoever, consult an attorney, do not read while operating nuclear machinery, etc., but:

• You won't have a sense of the value of your company until after you're up and running and potentially earning revenue. It's possible to have value without revenue if you're developing some sort of unique intellectual property which would have value separate from your company.
• You own the company, you and your co-founder can decide how much equity you're willing to give to advisors in return for their advice and support, create your pool of shares from there.
• If your advisors are holding out for a specific dollar amount or percentage of equity, I suggest you look for other advisors.
• Keep it simple enough to bring advisors onboard without wasting too much time. The more complex you make it, the more billable hours you'll pay for.
• Reward your advisors, but don't give away the store. They're offering advice, answering questions from experience, but they're not running the company, they're not risking their own investments nor representing other investors. Reward them for their help (if they've made a meaningful contribution) but don't think of it as paying for their services or support or advice, it's a gratuity.

Lindsay Watt:

Here are two thoughts for you:

1) Find some companies that have had a public Series A/Angel Investment that you know of and compare yourself to them

-You can likely find some companies that are similar to yours (try going to PEHub.com and trolling their archives)

-You can assume that most angels/VCs will likely take 25-50% of the company. Therefore if a company received $500K, the total valuation was likely $1-2M

2) Valuing illiquid companies is a black art

-I'm guessing you have no/minimal/negative cash flow but huge (yet uncertain) growth prospects. There's no way you can value your company using any of the traditional tools like free cash flow, etc. so you're just going to have to accept that if you want to offer equity the price is going to be very subjective (and to a certain extent it will be pulled out of your ass). Try getting some data in part A and then you'll have more ammunition to support whatever price you eventually come up with.

I like the idea at looking at the valuation of similar companies and assigning a similar valuation based on that. PEHub.com has been helpful.

It also makes sense to keep this very simple. My advisers are just that, advisers, not employees and I'm super excited to start talking to a few people about how they can help us.

Starting A Company Without Raising Money

I put this question out to the NextNY e-mail list and will follow this post up with any answers I come up with. In the meantime, feel free to leave a comment if you have something to add. This question, of course, applies to something I'm working on, but I'm not quite ready to get into specifics.

Hi All,

Maybe this is a silly question, but I'm looking for a little direction...

On the finance and legal side of things, there are a ton of great
resources out there for entrepreneurs, including this e-mail list, but
I'm finding information hard to come by for companies that haven't
raised money and don't plan to in the near future (or ever). So my
question is fairly simple...

We have 2 founders and we're self funded, but I would like to bring on
an advisory board and offer equity, as discussed recently here. How do
we do that if we haven't been valuated by a Series A or angel
investment?

Besides the advisory board there are other many other reason we would
like to have a pool of shares to leverage. Without outside investment
how do we determine the number of shares, their value and what does it
all mean? I don't want to just pull it out of my ass - it has to mean
something.

Thanks in advance,

Andrew

Leaving QR Codes in The Dust

I had a very interesting meeting yesterday with Sam Kleinman of Craze. Craze is the leading digital urban record label. But I'm more interested in what they are doing on the technology side.

Sam is working on a product, already launched in the UK, that kicks QR Code's ass - even with Google's backing. The concept is the same, you take a picture of something with your mobile phone and information is returned back to you.

With QR Codes your phone has to have special software, but more important, the manufacturer of the product has to be on board and actually print the code. With Craze's idea, they are digitizing what a product looks like, in this case the fronts of CDs in the UK. The idea is, you take a picture with any camera phone, send it off and within a minute you have more information, the option to download the tracks digitally and more.

The product implementations are endless. Think about taking a picture of your kid's favorite toy and getting recall information sent back to you. Or take a picture of your TV and get a list of detailed replacement parts. Or, even, take a snap shot of me and get back links to this blog and my LinkedIn profile.

This can even be driven by the users. Take a picture it doesn't recognize and you get prompted to fill in the details. There's no software installed, but so much more importantly, there's no reason at all to get manufacturers/printers/advertisers on board.

I didn't tell Sam that I was going to blog about this, and hopefully he doesn't mind, but he's looking for a partner or company to take this full scale in the US. If you're interested let me know.

I first wrote about QR Codes back in January.

Just Trying To Keep Up

Keeping up is hard.

I'm trying to keep up with a more than hectic work schedule which includes travel, meetings, calls and the hardest part... dodging bullets.

I'm about to move which comes with an entirely new set of challenges. I've been in my current place for over 3 years - the longest I've lived in one place. Ever. Now I'm off to Bushwick from Bay Ridge to live with Rachel. You can buy us a housewarming gift here.

And then, of course, there's the social graph that we all love to hate and hate to love. RSS feeds. Twitter. Status updates. Startups launching, funding and failing. And this blog. That's the most difficult, because I actually do care and now I realize that I need to prioritize what this is all about.

I won't even get into trying to keep up with friends and family.

But, it's nothing new, right? We all face the same challenges every day. I'm just now learning that I can be happy and not have to do it all. It's about balance and I'm slowly getting there.