Determining your startup’s worth is one of the hardest parts of the fundraising process. There is no magic formula that will spit out a valuation, namely because the number is highly subjective. The entrepreneur, for example, anticipates huge potential and may therefore put a high valuation on his company. The investor, on the other hand sees a company that needs capital to grow and may fail without it, so he may set a low valuation. To help the process, we’ve devised a few considerations to help value your company.
Monday, June 27, 2011
Saturday, June 25, 2011
Defense of the "Daily Deal" Biz from a VC Funding them...
Most merchants participating in daily deals do not have much deal experience. This leaves them at a disadvantage to the daily deal sites when it comes to negotiating the terms of running a daily deal, and can lead to stories like “Groupon Was ‘The Single Worst Decision I Have Ever Made As A Business Owner” (also on TechCrunch). Interestingly, I find that most of the daily deal horror stories come from merchants that a) negotiate terrible deal structure/terms b) do not accurately track redemption or customer spend and c) do not clearly understand the true economics of running a daily deal. This particular post references a story about a coffee shop that signed a 50/50 deal to sell $13 value vouchers (an atrocious 2.5-times their average ticket) for $6 and claimed to have lost $10,000 after selling 890 vouchers.
But, let’s take a look at the real economics:
Total Voucher Value = (890 vouchers) X $13 = $11,570.00
Total Food Cost = $11,570 X (85% redemption rate) X (30% food cost) = $2,950.35
Income From Groupon = (890 vouchers) X ($6 voucher price) X (50% split) = $2,670.00
Cost of Deal After Food Cost = ($2,950.35 food cost) – ($2,670.00 income) = $280.35
Total Food Cost = $11,570 X (85% redemption rate) X (30% food cost) = $2,950.35
Income From Groupon = (890 vouchers) X ($6 voucher price) X (50% split) = $2,670.00
Cost of Deal After Food Cost = ($2,950.35 food cost) – ($2,670.00 income) = $280.35
Even if we factor in additional variable costs (such as labor, etc.) and amortize fixed costs, a $10,000 seems unrealistically high. Unfortunately, it appears that the poor deal terms and lack of preparation crippled the merchant’s ability to convert new customers into regulars, leaving a bad taste towards the quality of the daily deal model—and daily deal users. Sadly, at times this manifests into merchants and their staff treating daily deal customers like 2nd class citizens. Then they wonder why they don’t come back.
Let’s take a moment to analyze a properly-structured restaurant deal:
A restaurant sells 1,000 vouchers that are $20 for $40 worth of food with a 70/30 revenue split.
- At 1,000 vouchers, the restaurant receives $14,000 for $40,000 worth of food ($14/voucher sold given the 70/30 revenue split).
- Average restaurant non-redemption is 18%, thus numbers adjust to income of $14,000 for $32,800 worth of food when you subtract the no-shows.
- Food cost = $9,840 (30% average food cost multiplied by $32,800)
- Income after food cost = $4,160 ($14,000 – $9,840)
- We could take this further by taking into account three additional points: a) the merchant does not pay ~2.2% credit card processing on the voucher value b) a percentage of customers spend less than the voucher amount and c) a percentage of customers spend more than the voucher amount, however, that goes beyond the scope of this article.
If reservations are required (per deal terms) and proper sales limits are set, the restaurant merchant can fulfill the vouchers with minimal increases in variable costs. The economics further improve for other merchants in different market segments (rock climbing, golf, laser hair removal, and so on—i.e. merchants with lower costs of goods). In the example above, even if the restaurant merchant simply breaks even on the economic side, a minimum of 600 new customers will be walking through their doors at no cost. What other advertising options could possibly beat that?
Excerpt from TechCrunch
Arash Pirzad-Allaei is a co-founder ofKASA Capital, where heads the internet technology development of KASA’s network of websites, including daily deals site Crowd Cut.
Wednesday, May 11, 2011
Microsoft Windows Phone Beats Android - April Fools
Pyramid Points - Why Windows Phone Will Beat Android http://t.co/AlwoyOu via @AddThis (April Fools) Funny, Microsoft is history, no impact. Amazing attempt at analysis.
Saturday, April 09, 2011
SEC considers letting startups use social networks to raise money | VentureBeat
SEC considers letting startups use social networks to raise money | VentureBeat
This could be a very interesting formalization and expansion of Micro-Funding used in emerging nations.
Sunday, January 09, 2011
The parable of the the PDA: predicting the smartphone’s future | asymco
Great review of past technologies in the context of determining how to develop and bring to market new technology.
Thursday, January 06, 2011
Android's Users Eclipse IPhone's for First Time, comScore Says (Jennifer Valentino-DeVries/Digits)
WSJ review on users...also some interesting feedback in comments section. Apple users (existing or new - MAC?) still don't get it that Apple prefers their products to remain niche plays...
Android's Users Eclipse IPhone's for First Time, comScore Says — For the first time, more Americans say they are using cellphones powered by Google Inc.'s Android system than Apple Inc.'s iPhone, according to a new survey from technology-tracking firm comScore Inc.
Thursday, December 16, 2010
Wednesday, December 15, 2010
Tuesday, November 30, 2010
Friday, November 12, 2010
Saturday, November 06, 2010
Sunday, October 31, 2010
Friday, October 22, 2010
Wednesday, September 22, 2010
Thursday, September 09, 2010
Tuesday, August 17, 2010
Thursday, August 12, 2010
Sunday, August 08, 2010
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