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Posts Tagged ‘business valuation’

Bizak Auction

December 12, 2008 Leave a comment

Bizak is currently up for auction on SitePoint. Any interested parties can bid directly on the site or contact me (617-947-8071 or email) for additional information.

Auction URL:  http://marketplace.sitepoint.com/auctions/53150

Social Network or Business Network?

September 30, 2008 Leave a comment

According to the current Bizak benchmarks, business networks are significantly more profitable than social networks.  Social networks on Bizak have an average valuation of $763,102.56 while business networks average $5,626,000.00.

Comparing the Financial Performance of Startups

September 13, 2008 Leave a comment

Slide 7 from the Bizak presentation discussing our market and the need to make an apples to apples comparison of internet startups.

For the high quality version please click here

Bizak’s Revenue & Business Model

September 11, 2008 Leave a comment

Here is another slide from Vencorp’s Mashable Startup Showdown.  This video is a bit longer at 2:49 and this time around I’m discussing (in detail) Bizak’s current revenue model.  The discussion also talks about our plans to syndicate our data via XML (available soon for $4,000/month) and the integration of professional consulting services for both startups and investors.

For the high quality version of this video please click here.

Startups & Public Companies

September 3, 2008 2 comments

Below is a Vencorps forum post in response to a question asked about the ability of Bizak to value startups.  – Tom

Startups and public companies are indeed very different animals but revenues are revenues. Bizak valuation is based purely on revenues – not speculation. So if a startup makes $1 million/year and a public company makes the same then our calculations will value the two exactly the same, ceteris paribus. Of course public companies are more established and therefore usually have higher revenues and valuations. Our calculations also take into consideration the value of each visitor – we call it earnings per visitor (EPV). For example, if a gossip site receives 1 million visitors, but only has an EPV of $0.01, and a corporate consulting firm has 1,000 visitors with an EPV of $10 then both sites have the same traffic value ($10,000). This is then added (like a bonus) into the Bizak Estimate. In my opinion if you don’t know anything about your visitors then there is very little value in them – one major problem that Facebook is having.

Facebook was valued at $15 Billion mainly because Microsoft didn’t want Google to get its foot in their door. Back in June, I wrote an article about Facebook’s revenues (Facebook Revenues) which used the Bizak calculator to come up with a valuation of $1.3B for Facebook. This estimate was based on Facebook’s 2008 expected revenues of $350 million. If you input the $15 Billion valuation into the calculator then Facebook needs $313 million/month in revenues to justify that $15B valuation. Since Facebook is having a lot of trouble monetizing I don’t see that happening this decade. I also don’t see Facebook going public anytime soon since the markets will laugh at that $15 billion and value them more in line with revenues.

As for Twitter this was one of my favorite examples that I previously wrote about (Twitter Costs). Since Twitter has no revenue model and huge server costs my calculations actually valued them at a negative $600,000. The negative valuation is a result of that visitor value (EPV) that I referred to in the first paragraph. Of course there is a lot of value in Twitter that must be considered (and has been) by venture capitalists but since Bizak is based purely on revenues we gave it a negative valuation.

In sum Bizak doesn’t predict what the future value of a startup might be, but either does the stock market for public companies. Just like stock prices and market capitalization, the Bizak valuation will increase for startups who increase their revenues. In actuality the stock market probably places more hype and speculation into their valuations then we at Bizak do.

YouNoodle

August 29, 2008 Leave a comment

I recently spent some time on YouNoodle to test their Startup Predictor.   YouNoodle’s Startup Predictor estimates what your startup will be worth in 3 years – Bizak estimates (based on revenues) what your startup is worth right now.  From the YouNoodle questions it appears that they calculate your startup’s valuation based on the probability of success and the previous success of similar startups and entrepreneurs. For example, I have 13 years of online experience so my guess would be that I have a higher valuation or probability of success than someone with only 1 year of experience?

My initial interest in YouNoodle was because my startup, Bizak, calculates valuation based on revenues and in essence could be seen as a competitor.  However, this information could be very interesting and possible useful for Bizak – especially on the consulting side. In addition to the Bizak Benchmarks it could also be beneficial to offer startups this probability of success data. For example an entrepreneur looking to start a business network can use Bizak to determine the average valuation of startups in his industry is $100,000. They can then use YouNoodle’s probability of success data to determine that for entrepreneurs with over 5 years of experience the average valuation jumps to $500,000. That would be a very interesting combination of data! This combination would be very beneficial to investors in the form of direct data, research papers and consulting services. With this information we can decrease investors’ investment risk by providing them with both an estimate of future valuation and which type of entrepreneurs have a higher probability of success.

The Value of A Business Idea

July 9, 2008 1 comment

How much is my idea worth?  For startups seeking seed financing your initial business valuation is essential and very difficult to answer.  For those not seeking financing then your initial valuation can wait until analytics and revenues determine it for you.  For most ideas the initial value doesn’t necessarily come from the idea itself but the team behind that idea.  Many of us have similar ideas but the real value comes in how that idea is executed.  The more experience the team has the more likely they’ll have a successful execution – even if the idea isn’t earth shattering.  For many ideas aren’t earth shattering, however the most successful ones provide a simple solution to a common problem.

With all that said many startups still need to create a valuation for angel investors.  In order to determine how much equity to sacrifice you need the valuation.  If you’re valued at $100,000 then an investment of $10,000 will cost you 10% in equity.

Most of the essential parameters (revenues & traffic) for determining valuation are unknown when a business is just an idea.  It’s because of these unknowns that Bizak was launched to give entrepreneurs a better understanding of the industry they’re looking to enter.  Bizak does this by giving you the average, high and low for visitors, costs, CPV, revenues, RPV, earnings, EPV and business valuation.  All of these parameters can then be sorted according to industry, business type, revenue source and any combination of the three.  

For example, if you’re an entrepreneur looking to launch an e-commerce site the Bizak benchmark’s will tell you that e-commerce sites have average monthly traffic of 131,204 visitors, with earnings of $18,066.67, an EPV of $5.27 and an average valuation of $2.2 Million.  Of course this is an average so there are some that do much better then the benchmarks and others who do a lot worse.  Where do you fit in?  

Another potential way to value your business is to stick with what you know.  You have absolutely no clue what your revenues or traffic will be.  You can guess, and a lot of business plans are guesses, but the truth is until you launch you have no idea if people will respond to it or not.  What you do know is what your first year costs will be.  You know how much your application will cost to build, how much you want to spend on marketing and you know (in most cases) how much your servers will cost.  Add those costs together and you now have a total for first year costs.  Use the Bizak Calculator to estimate how much traffic it will take to break even with an EPV of X amount.  If you anticipate being profitable the first year then you need revenues to be greater than your costs.  So, say you’re first year costs will be $500,000.  In order to break even you need revenues of $500,000 which gives you a $1.5 million valuation.  

Of course the higher your costs doesn’t mean the more revenues you’ll generate but you need to start somewhere.  However, if you get 10 experts in a room it’s likely that none of them will come up with the same valuation.  In the end what it all comes down to, after all the speculation and fancy charts, is what you’re willing to give up and for how much.  If you don’t think the terms are fair then chances are they’re not.