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When I first presented to angels in Sydney I found them initially "tight", and they laughed at the $2M valuation I was pitching. I feel like the one-time cash-
by michaelochurch 14y ago
When I first presented to angels in Sydney I found them initially "tight", and they laughed at the $2M valuation I was pitching.
I feel like the one-time cash-drop is a terrible model for early-stage businesses. A good (1.5+) programmer is worth at least $300k/year working on his own stuff, because (a) he actually gives a shit, and (b) his competence will grow faster than it would in a typical paid job.
So for 4 years of a good engineer's work, $1.2M is a fair sight-unseen valuation. Scale this up for team size and include existing validations from the market, and $5-10M isn't unreasonable (with a 4-year vesting period on founder equity; unvested stuff going to investors).
The indefinite duration to profitability is a problem, because it's such a huge unknown that renders valuation calculation a joke. When you're valuating a person, any number that comes without an amount of work (e.g. a duration) is meaningless.
I feel like an Autonomy Fund model is better. Broad-strokes overview, minus the regulatory stuff and incentive problems and adverse-selction protections: there isn't a specified time line, but you get 75% of your market salary, and investors get a passive 30% equity in whatever you build (including side projects, that being the one downside for employee). The going assumption is that you're worth 2.5x more to the economy when you work on your own stuff than when you work for a typical company.
Of course, there are various protections that need to be in play to prevent people from scamming it (i.e. quitting the Fund, then launching something next-day with 100% equity) and there would be a need for some kind of audit cycle (to push out people who are coasting) but I think the overall model is superior to anything that exists now.
One thought I had is that local governments would have an interest in setting these kinds of things up, because even if the concept fails and they "lose" money, it goes back into the city and the network effects also build up the technology ecosystem there.