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Crowdfunding-Res
12-12-2013, 06:26 AM
What's your take on valuation of a venture in an early stage, is it true that valuations in crowdfunding are much higher in sense that the entrepreneur dictates the price and how much equity he's willing to give away, while business angels usually have an upper hand in this and can re-negotiate down the valuation successfully most of the time?

If this is the case, than it becomes messy for firms who used crowdfunding to switch to angel/VC rounds due to diverging valuations...

admin
12-13-2013, 09:05 AM
I think it depends somewhat. With crowdfunding, if you have an idea that can appeal to a lot of people somewhat, rather than an ideal that just a few people think is excellent, then you can get a whole lot more funding than with an Angel investor. Take a look at some of the top Kickstarter projects. They all have appeal to hundreds of thousands of people, that's why they raised so much. With an equity model things would be similar. With angel investors you usually have maybe 2-3 investors competing rather than tens of thousands with crowdfunding.

CrowdFundFusion
12-13-2013, 08:31 PM
Are you talking about a successful campaign? I know that usually valuation is based on how much is made by a company over how many years, then a percentage is calculated. For the sake of argument is depends heavily on industry and other variables so the valuation can vary greatly.
As for Crowdfunded campaigns I had not heard of this before (a higher valuation) but what the Admin makes sense. If you have a built in customer base then it makes sense. Does anyone have or heard of any examples of this higher valuation? I am now quite curious :).

Crowdfunding-Res
12-14-2013, 07:44 AM
@admin

That makes sense, usually it's difficult to get even one angel aboard, so pitching around in order to get a few of them to compete is a bit tedious ;) There is still no data on equity-based model, for sure sound projects will be backed by thousands of people, but the question is how that would influence the amount of ownership an entrepreneur gives up? Even the exact model is not yet clear: is the entrepreneur supposed to make a pre-money valuation and include it with his pitch and stick to it, or he could change the "deal" on the fly as the funding is pouring in, or maybe see first how much interest there is and then make an "offer" to funders? This suggests that, on a rational basis, many would try to leverage multiple smaller rounds and rise valuation on every subsequent round ;)

@CFF
Hmmm, if you are referring to a kind of DCF model for valuing a *startup*, this has been proven as next to useless in research and practice. It's more a dealmaking art, even with professional investors.
This is an area to be researched, by looking at comparable small firms who received angels funding VS those who received crowdfunding and try to figure out which gets better inflow of capital with less ownership given away. As I said above, rational expectation is that if there is demonstrated interest, subsequent rounds will go at higher and higher valuations

CrowdFundFusion
12-14-2013, 09:04 AM
Yes it is the DCF model that I was referring to, it's what I was taught in uni and I agree that it does have it's shortcomings. It terms of VC and Angel investing with the numbers that actually get funding vs those that apply, preference is usually given to those that have some sort of history. The numbers are actually quite staggering (search the net), the vast numbers of start-ups (with history of sales mind you) that get either VC or a an actual Angel (not family) are extremely small. It is possible but difficult. I guess Crowdfunding can change that scenario but i don't know of any concrete examples.

Does anyone have a link or heard of a crowdfunded company that has received either VC or Angel investment soon after they have received their crowdfunded funds?

SocialCam
12-17-2013, 03:07 PM
Are you talking about a successful campaign? I know that usually valuation is based on how much is made by a company over how many years, then a percentage is calculated. For the sake of argument is depends heavily on industry and other variables so the valuation can vary greatly.
As for Crowdfunded campaigns I had not heard of this before (a higher valuation) but what the Admin makes sense. If you have a built in customer base then it makes sense. Does anyone have or heard of any examples of this higher valuation? I am now quite curious :).

Just something to add to this very good point.... Growth is also a major factor in the algorithm investors use. A Company making $1 million a year but shrinking by 50% a year isn't worth as much as one making $500k and growing by 50% annually. So many variables that the pros use when determining what valuation to put on a company. I have a feeling a lot more talk about valuations will be taking place here once equity investing is legalized here in the US.

Crowdfunding-Res
12-28-2013, 03:03 PM
Guys here https://vcexperts.com/buzz_articles/1310 were discussing valuations in the context of crowdfunding, but without any revolutionary insight...seems like it boils down to 'it depends' lol

seanhard
05-19-2014, 02:32 PM
I really like the idea of using a rewards based crowdfund to gauge proof of concept, market validation, and find some seed capital while preparing for the larger equity crowdfund. This is a concept that may have the ability to save a lot of time and money while providing vital information to founders.