So you are going to become the new Google? That’s awesome….! And your invention will make the world in which we live a better place? Really great! A company worth hundreds of millions in business value? Yes think big and aim for the moon – if you miss you end up among the stars. I know that too.
Unfortunately, you do not yet have free cash flows and there is also no strategic buyer who wants to acquire your company in this phase. So how do we build a company with a high value?
When investors look at a company that is still in its early phase, they focus on reducing risk. This is also a good guide for you as an entrepreneur.
The first and most important step to reduce the risk is to prove that your invention has market potential. In other words, you’re able to sell your products. So the strongest proof is a paying customer. Now, this customer does not have to pay directly for the ready-made product. It may well be that this product does not exist or is not yet ready at this stage. A customer can also take an option on the first series when they are ready, or a conditional PO (Purchase Order that takes effect when certain conditions have been realized), or a customer can pay (partly) for the development.
Often the earnings model is reinvented several times before a business model that competitively meets the market needs is created in full. In this phase, it is nice if you don’t have a large organization yet and you can still quickly switch. Of course, the risk becomes lower if you as a company can show that you have more customers and that you are able to retain them over a longer period of time.
A second important risk-reducing step is a good team. It strikes me that companies starting with multiple founders get off to a better start. Personally, I find an organization with 3 founders a strong one. If there is only 1 founder, he/she has to do everything alone and there is often a technical orientation. When there are 2 founders there is already more room for commerce and finance, but you don’t yet have an optimal situation; the technique is still strongly represented and you can get deadlocks. With 3 founders, the technique is subordinate and you see a stronger focus on commerce and finance. Also, a trinity gives no room for deadlock.
In addition, it is important for technical founders to transfer the knowledge as quickly as possible and make the company independent of his/her person. Next, as a team, it is important to lay down ambitions that are attractive but, above all, realistic and demonstrate that they are being realized.
The third point of risk reduction is technology or product. What is the minimal viable product that works for you? What does the development roadmap look like, what risks are involved? Despite the fact that we, as entrepreneurs, often find the technology the most important thing, it is often the least risk for investors.
Ultimately, the company valuation is also “what the madman wants to spend”. Although we can always use the above points of attention to ensure that these mad people will spend just a little bit more.
Illustration: (c) seamgen
