6 ms·

A quick warning for everyone. Investing without having a complete access to the books of the company you invest in is extremely stupid. No serious investor woul

A quick warning for everyone. Investing without having a complete access to the books of the company you invest in is extremely stupid. No serious investor would do that. Don't be stupid. You must make sure the valuation is fair, this means - check the valuation report, check the reputation of the company who did the valuation report, sanity check it, look for signs of bullshit. Keep in mind, even if the founders have solid reputation there may be some unethical MBA behind the scenes who can act without founders understanding exactly what he is doing.

irollboozers 13y ago
Most early stage deals, like the ones you'll find on WeFunder or AngelList, typically do not have valuations or financials to share simply because it's too early on for a company to seriously offer that. Why waste time putting together financial and valuation models, when you could be working on the product and trying to grow?
- agilebyte 13y ago
  Because if you can be working on a product right now you don't need outside investment?
  - irollboozers 13y ago
    No, rather it's that as a founder you have limited time to expend, and spending effort getting traction will have a much larger return than trying to optimize for the various requests of angel investors. There are also enough quality investors out there who use signals other than hand-wavy financial reports that you could be spending your time to get.
- vladimirralev 13y ago
  These guys are asking for very specific prices on their website. They must have some kind of valuation behind it. I just need to know how they came up with this number. Also, both IRS and SEC have rules and guidelines on how to do valuation on startups - they use things like committed potential customers, founder reputation, CVs and things like this. Every startup has to do valuation before issuing stock options for example.
  - Major_Grooves 13y ago
    When I did the "valuation" on my startup for crowd-funding (Seedrs), when it was nothing more than a wire-frame and an idea in my head (and an MBA research project, but you almost make me feel like I should be ashamed to admit that or something), I just did it based approximately on the valuations that various accelerator-type programmes (including YC) were giving. I came up with 14% for £30k, giving a valuation of £214k. Low enough to get investment fairly quickly - nobody complained. How on earth are you meant to do a books-based valuation of an early-stage pre-revenue company? You have to give a specific valuation so people know what they are getting.
    - vladimirralev 13y ago
      Just google it. There are many methods to do valuation of startups. And again, you can not issue stock options without IRS-supervised valuation. Most startups on the website are post-seed with more than 3 people on the team already BTW. So it's pointless to discuss pre-seed valuation at all. Whatever numbers you have in your valuation I need to know how you got them to decide if it makes sense. (Edit: You may be from the UK, so it's a little different than US. I was speaking for the US case here.)
      - irollboozers 13y ago
        You're mistaken, almost all of them are seed-stage, minus one. You can issue stock whenever you want. But I realize that your point is that you'd prefer due diligence and transparency on terms before using a site like WeFunder. The thing is, most investments at that stage don't have that much due diligence beyond market size, team, and traction. I think this is where you're misunderstanding.
        vladimirralev 13y ago
        You're mistaken. Most of these companies are raising >500K, this is not seed money. Seed is typically less than 100K. There are at least 10 companies that come from YC, which means they already got their seed round. You can't do seed twice by definition.
- EGreg 13y ago
  Because a basic model can take 20 hours, and then is useful in supporting the valuation in discussions. It can literally bump the value of your company post-investment, similar how an MS on your resume can get you a bigger salary. You COULD do without it, but it's not so obvious why you should always omit it.
momchenr 13y ago
> some unethical MBA behind the scenes Yes, because MBA's have a monopoly on unethical behavior.
- agilebyte 13y ago
  This post by Forbes would say otherwise, but I stopped reading after they said average righteous blogger in leftish spheres: http://www.forbes.com/sites/freekvermeulen/2010/11/22/does-an-mba-make-you-unethical-finally-some-evidence/ http://www.forbes.com/sites/freekvermeulen/2010/11/22/does-a...
- vladimirralev 13y ago
  They don't have monopoly, but their job is essentially to take as much of your money as possible and give back as little as they can. When you have a party like this involved you watch your back.
jonnathanson 13y ago
"there may be some unethical MBA behind the scenes..." This is an unnecessary smear on MBAs. There are bad ones out there, and there are plenty of good ones. Just like with any other degree. Your points are completely sound, and I agree, but it's time we ended the knee-jerk hatred of those three letters. There are YC-backed startups with MBAs at the helm, and there is an increasing number of engineers with MBAs or dual degrees.
- vladimirralev 13y ago
  MBAs are fine. But their job is to take as much money as possible and give back as little as they can. This is fine when they are dealing with other equally equipped parties (YC, vc funds etc). If you don't understand the game, there is almost no doubt that an MBA will try to offer you the worst possible deal for you. If you have no means to examine the details of the deal, that's a guarantee. That's how business works. It is their job and they would be doing a bad job if they do otherwise.
  - jonnathanson 13y ago
    You're painting "MBAs" with too wide a brush. There are MBAs in marketing, MBAs in health care, MBA software engineers, MBAs in consulting, MBAs in advertising, MBAs founding companies, MBAs in production and creative fields, MBAs in media, etc. "MBA" is not a job title; it's a degree. I think the term you're looking for is "finance" or "Corp Dev," which is more of a specific job role that often fields MBAs to fill it. Their job is to get the most favorable terms possible in a deal, but not at the expense of the deal itself. So yes, go into a deal with a finance or corp dev person with your eyes wide open -- but they lose more than they gain if they develop a reputation for completely screwing people over again and again. It pays to know what their incentives are, how their firm makes money, and what your alternatives are to a deal with them (and often, your alternatives involve deals with other finance types).
    - vladimirralev 13y ago
      MBA is a culture and a way of thinking as well. What you enumerate are MBA specializations. The core of every MBA course is about optimization and modeling. There is no argument what to do when you can sell something at price P or 100*P, no matter what kind of MBA you have. There is a mindset associated with it. It's a personal failure if you miss an opportunity to make more money as an MBA.
kansface 13y ago
Valuation of the company is determined by supply and demand (of the company itself in the form of stock). Supply is of course limited; companies will only raise a few 100K$ max in a seed round. Demand on the other side, is largely decoupled from how the company is doing in the market since its just too damn early. In other words, the only things that matters at this point are the founders and the market. If there is high demand, companies can raise their market cap. When companies struggle to raise money, they lower their cap. Established business can use revenue as an indicator to potential investors. This makes little sense to companies that have a few months of revenue total.
photorized 13y ago
People invest in OTC BB and pink sheets stocks all the time - no access to books. It will take a couple of spectacular failures for people to reevaluate current crowd funding model.

irollboozers 13y ago

Most early stage deals, like the ones you'll find on WeFunder or AngelList, typically do not have valuations or financials to share simply because it's too early on for a company to seriously offer that. Why waste time putting together financial and valuation models, when you could be working on the product and trying to grow?

agilebyte 13y ago
Because if you can be working on a product right now you don't need outside investment?
- irollboozers 13y ago
  No, rather it's that as a founder you have limited time to expend, and spending effort getting traction will have a much larger return than trying to optimize for the various requests of angel investors. There are also enough quality investors out there who use signals other than hand-wavy financial reports that you could be spending your time to get.
vladimirralev 13y ago
These guys are asking for very specific prices on their website. They must have some kind of valuation behind it. I just need to know how they came up with this number. Also, both IRS and SEC have rules and guidelines on how to do valuation on startups - they use things like committed potential customers, founder reputation, CVs and things like this. Every startup has to do valuation before issuing stock options for example.
- Major_Grooves 13y ago
  When I did the "valuation" on my startup for crowd-funding (Seedrs), when it was nothing more than a wire-frame and an idea in my head (and an MBA research project, but you almost make me feel like I should be ashamed to admit that or something), I just did it based approximately on the valuations that various accelerator-type programmes (including YC) were giving. I came up with 14% for £30k, giving a valuation of £214k. Low enough to get investment fairly quickly - nobody complained. How on earth are you meant to do a books-based valuation of an early-stage pre-revenue company? You have to give a specific valuation so people know what they are getting.
  - vladimirralev 13y ago
    Just google it. There are many methods to do valuation of startups. And again, you can not issue stock options without IRS-supervised valuation. Most startups on the website are post-seed with more than 3 people on the team already BTW. So it's pointless to discuss pre-seed valuation at all. Whatever numbers you have in your valuation I need to know how you got them to decide if it makes sense. (Edit: You may be from the UK, so it's a little different than US. I was speaking for the US case here.)
    - irollboozers 13y ago
      You're mistaken, almost all of them are seed-stage, minus one. You can issue stock whenever you want. But I realize that your point is that you'd prefer due diligence and transparency on terms before using a site like WeFunder. The thing is, most investments at that stage don't have that much due diligence beyond market size, team, and traction. I think this is where you're misunderstanding.
      - vladimirralev 13y ago
        You're mistaken. Most of these companies are raising >500K, this is not seed money. Seed is typically less than 100K. There are at least 10 companies that come from YC, which means they already got their seed round. You can't do seed twice by definition.
EGreg 13y ago
Because a basic model can take 20 hours, and then is useful in supporting the valuation in discussions. It can literally bump the value of your company post-investment, similar how an MS on your resume can get you a bigger salary. You COULD do without it, but it's not so obvious why you should always omit it.

momchenr 13y ago

> some unethical MBA behind the scenes Yes, because MBA's have a monopoly on unethical behavior.

agilebyte 13y ago
This post by Forbes would say otherwise, but I stopped reading after they said average righteous blogger in leftish spheres: http://www.forbes.com/sites/freekvermeulen/2010/11/22/does-an-mba-make-you-unethical-finally-some-evidence/ http://www.forbes.com/sites/freekvermeulen/2010/11/22/does-a...
vladimirralev 13y ago
They don't have monopoly, but their job is essentially to take as much of your money as possible and give back as little as they can. When you have a party like this involved you watch your back.

jonnathanson 13y ago

"there may be some unethical MBA behind the scenes..." This is an unnecessary smear on MBAs. There are bad ones out there, and there are plenty of good ones. Just like with any other degree. Your points are completely sound, and I agree, but it's time we ended the knee-jerk hatred of those three letters. There are YC-backed startups with MBAs at the helm, and there is an increasing number of engineers with MBAs or dual degrees.

vladimirralev 13y ago
MBAs are fine. But their job is to take as much money as possible and give back as little as they can. This is fine when they are dealing with other equally equipped parties (YC, vc funds etc). If you don't understand the game, there is almost no doubt that an MBA will try to offer you the worst possible deal for you. If you have no means to examine the details of the deal, that's a guarantee. That's how business works. It is their job and they would be doing a bad job if they do otherwise.
- jonnathanson 13y ago
  You're painting "MBAs" with too wide a brush. There are MBAs in marketing, MBAs in health care, MBA software engineers, MBAs in consulting, MBAs in advertising, MBAs founding companies, MBAs in production and creative fields, MBAs in media, etc. "MBA" is not a job title; it's a degree. I think the term you're looking for is "finance" or "Corp Dev," which is more of a specific job role that often fields MBAs to fill it. Their job is to get the most favorable terms possible in a deal, but not at the expense of the deal itself. So yes, go into a deal with a finance or corp dev person with your eyes wide open -- but they lose more than they gain if they develop a reputation for completely screwing people over again and again. It pays to know what their incentives are, how their firm makes money, and what your alternatives are to a deal with them (and often, your alternatives involve deals with other finance types).
  - vladimirralev 13y ago
    MBA is a culture and a way of thinking as well. What you enumerate are MBA specializations. The core of every MBA course is about optimization and modeling. There is no argument what to do when you can sell something at price P or 100*P, no matter what kind of MBA you have. There is a mindset associated with it. It's a personal failure if you miss an opportunity to make more money as an MBA.

kansface 13y ago

Valuation of the company is determined by supply and demand (of the company itself in the form of stock). Supply is of course limited; companies will only raise a few 100K$ max in a seed round. Demand on the other side, is largely decoupled from how the company is doing in the market since its just too damn early. In other words, the only things that matters at this point are the founders and the market. If there is high demand, companies can raise their market cap. When companies struggle to raise money, they lower their cap. Established business can use revenue as an indicator to potential investors. This makes little sense to companies that have a few months of revenue total.

photorized 13y ago

People invest in OTC BB and pink sheets stocks all the time - no access to books. It will take a couple of spectacular failures for people to reevaluate current crowd funding model.