The WTFs of a Business Angel: #1 The Valuation Presentation
When we started SpeedInvest about 18 months ago, we were a startup ourselves. A very well funded startup, but still, we were a team of people who had some experience in building companies and no experience in building a Business Angel fund. We are still learning an awful lot, because you can profit from other people’s wisdom, but there is no way around doing things yourself, making mistakes, trying again and again, learning from what you’ve seen so far. That is the spirit that we like to keep, a positive and pro-founder type of attitude, because the truth is: we love what we are doing. It is fun and exciting to meet visionary people, who have drive and enthusiasm to change whatever tiny bit of their world, step by step. However, there are those rare events where we sit across the table in our office and are having a facepalm moment. When one of us gets an email from a startup or reads a piece of news about our industry that just makes you go “WTF?”. For your reading pleasure, but also to offer you the opportunity to learn, we open up our treasure chest of awkward moments and give you our top WTFs, of course with all due respect to those contributing to them.
#1 The Valuation Presentation
A clear leader on our list of WTFs was an e-mail that we got from a founder with a promising business. He had a nice idea, a good target market and had already launched a product. It was still in an early stage, but you could tell that this could turn out to be a valuable investment. We had had some talks already, everything seemed OK, when all of a sudden his lawyer called our partner Erik in the US asking for a meeting to draft up a termsheet.
What Erik then told him was: “Well, you know, we only had one phone call and before moving forward we would really like to spend more time with the team and see if we could add any value there”. Already awkward, but still only a taste of what happened then. A week later, we got an e-mail from a well-known business consultancy with two presentation decks, one in English and one in German. The content? A picture perfect, textbook case of company valuation showing a value well north of 10 million euros. This was an Austrian company that didn’t exist a year ago and only had a small number of customers. Just for the record: we hadn’t even met the team at this point, nor stated anything about investing in the company.
Why did this make us go “WTF”? 1. Because of the total lack of knowing what steps needed to happen and 2. Because of the crazy valuation expectations, without even having met the team, looked at the product in detail, etc. Yes, startup valuations do go crazy from time to time, but you have to consider what stage you are in. And where you are located. Although reading TechCrunch for valuation indications might seem reasonable there is a difference in valuations, which can be explained by one simple fact: Vienna is not Silicon Valley – yet. Just to be very clear on that: I am not saying that an Austrian company could not be worth more than 10 million, a lot of companies have proven the contrary. But in that early stage, sending over a valuation calculation just doesn’t make any sense.
The holy grail of valuing a startup is not easy to tackle but the easiest way is to just talk to someone who knows the game a little and get feedback early on, because you could ruin a relationship that might have been valuable. After all, getting an investor to support you is basically like a sales process, and sending a quote for 100k for your product to a little retail store across the street, when they even haven’t asked for that is not something many would consider.