Valuation
1. How do I figure out the valuation of my startup? The reason why we know the price of bread clearly today is due to the existence of a bread market. If John sells his bread higher than his competitors, he would sell less bread, and if he cannot overcome the competitive pressure, then John is forced sell his cread at a price closer to his competitors or cheaper. This pressure is called the "Invisible Hand", and the more heavily traded the market is, the more powerful this "Invisible Hand" becomes. Now, there is no market the buys or sells startups. When there are no market, the "Invisible Hand" becomes missing. Since the "Invisible Hand" creates the market price for everyone to refer to, and when it's missing, then there is no clear market price. When there is no clear market price, then the valuation of the item becomes a willing buyer-willing seller basis. If your startup is mostly made up of an idea, without an MVP, then the valuation of the startup is going to be a little more than nothing, and hardly more than the aggregate of the founders' annual salary. If your startup has an MVP, the valuation would increase to also include the time and effort spent to create that MVP. That sets the minimum valuation because of expenses spent. As a startup gets its first client and more, revenue considerations would also be added into the valuation. There are many ways to compute the revenue considerations. Principally speaking, the ceiling is set at the size of the market. If the startup gets 100% of the market, then the valuation of the startup is the market. However, that is unlikely to happen as competitors will definitely appear. Hence, this is where your negotiation skills becomes important.
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