4 Key Questions to Answer When Valuing Your Start-up

Making of an ICO: Journey of a Start Up - Part 5

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“Man cannot discover new oceans unless he has the courage to lose sight of the shore.”

Andre Gide

Zero.

That’s exactly how much your company is worth when you’re yet to start trading and don’t own any assets and you’re trying put a valuation on it to obtain first time funding from investors.

In fact it’s not even zero. It’s limbo. And I’m not talking about the dance. 

Limbo: an uncertain situation that you cannot control and in which there is no progress or improvement.

Cambridge Dictionary

Until you have any assets, sales or orders for sales of any kind, you’re in limbo. So how do you get out of limbo and arrive at a number that investors will be willing to pay, and you’ll be willing to accept, for a stake in your business?

I want to start straight off by saying this isn’t a technical paper. So if you’re expecting information on how to calculate Net Present Value or how to do a Discounted Cash Flow, you’re better off googling it. I could tell you, but as will be your mood on numerous occasions before you find peace in your venture, I just can’t be arsed. What’s the point?

That’s a question you’ll ask yourself more than you’ll care to remember during your start-up journey. For all the effort, dedication, blood, sweat and tears you pour into your venture, very few people will give a fuck. Why should they? And that right there is the first key question to ask yourself:

“Why should anybody care?”

I’m not being facetious or trying to be irreverent, and the question isn’t in reference to the market in relation to your product. (The day your unwavering belief in that subsides, it’s over). “Nobody cares” is a conflicting feeling you’ll have along your journey on more days than one. I say conflicting because while self-prescribed solitary confinement can lead to bouts of stir crazy, it can be preferable to the incessant questions regarding how you’re progressing from friends and family that you allow to reach you.

So, if your answer to “Why should anybody care?” is anything other than a shrug of your shoulders or something verbally similar, you may need to reassess whether you are cut out for start-up life. If you did shrug your shoulders, or something verbally similar, then the next question you need to ask yourself when valuing your venture is:

“How much am I willing to give up?” 

The first answer may, and will include, family (time), friendships, income, leisure, sanity, hope…

For every day of positive development, there’ll be seemingly endless days where there are none. And it’s easy to stagnate and lose hope. While this situation can apply to any business, and indeed facets of life, your scenario of running a company that’s currently in limbo and where you’re earning zero, will compound the frustration that’s felt. A time where even on the quietest day the “noise” will be unbearable and as mentioned above, you’ll ask yourself, “what’s the point?”.

Which leads again to:

“How much am I willing to give up?”

Though you may feel very strongly like you want to quit and return to shore, you should weigh it up against the regret that you will certainly feel if you do quit. There’s no mathematical “Regret Ratio” - that I’m aware of - that can be referenced like you could other financial ratios to value your company, however “probable length of regret” could be a good starting point. The longer you believe you’ll regret quitting, the more valuable your venture is.

Perpetual motion is absolutely key if you don’t want to sink. Like click through rates on email marketing campaigns, only a very small percentage will ever lead to sales. But without the campaign, there are no clicks. So you have to keep moving and eventually something will click, that can set off a chain of other events.

Or as it turned out in our case, a blockchain of events.

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As soon as the opportunity to fund UKasii via an ICO presented itself as a viable option, there was no way we were going to be “valued” in the traditional way. We’d let the customers value us. It would be real-time market research, and investment, rolled into one. If the customers saw the value in our cryptocurrency rewards program, they’d purchase UKasii Coin which they’d be able to use immediately. UKasii would be crowdfunding 101.

Avoiding the traditional funding route would also mean that we would not be under the burden and pressure of having to meet investor financial returns targets annually. Our decisions would be able to be much more customer focussed.

It also meant question 4 answered itself:

“How much am I willing to give up?”

Zero.

To be continued on 4 December 2018.

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