Re: [newtech-1] Quirky valuation question

From: Paul H.
Sent on: Sunday, March 17, 2013 10:11 AM
Valuation at your early stage is very tricky.  Anyone doing an appropriate valuation analysis for you would use two methods:  (1) discounted cash flow, and (2) comparable deals.  Discounted cash flow is complicated, requires building out a long term cash flow projection and involves a lot of subjective inputs, including the projection assumptions and the appropriate discount rate that factors in risk and other things.

A more useful approach would be to gather examples of "comparable deals," or equity investments for similar apps at a similar stage.  The problem is finding data points...I could only suggest trying to talk with angel investors or VCs who may have invested in similar products.

Another possible approach is to compensate him for the time and effort of the work he did, as if he had been an employee.

In the end, the answer will be whatever you and your partner can agree to.  What are you willing to pay to get your partner out, and what is he prepared to accept.  The attraction to him of course is getting something tangible now and not taking the execution risk of the launch.  You ought to talk with your lawyer to figure out if you have other leverage points you can bring to a negotiation.

Your situation highlights the importance of agreeing to a solid vesting schedule, based on time and performance, when bringing in an equity partner.

On Mar 17, 2013, at 7:59 AM, Andrew Muench wrote:


I have a bit of a quirky problem and am out of ideas for next steps or solutions. Has anyone faced this issue in the past? Any suggestions would be appreciated!

The story: My brother (David) and I (Andrew) started building a mobile app in 2010. In 2011 we added a third programmer, a friend of a friend of David's, named Tim. Tim was assigned to work on a specific piece of our product, which now we have no plans to use. However, in 2012 we made him a 33% "equity" owner in the company. In late 2012, we kicked him out for being entirely unresponsive and unproductive.

The problem: Our pro bono lawyer (Jack) is advising us to find a valuation for the project / LLC (if relevant) so we can effectively buy out Tim's "missing hole" shares before we launch our beta. I am not sure what type of valuation is even needed here, if at all, or where I might find someone to do this work if this is the right direction for me to move. How much do you suppose it should cost me for this "quick" assessment?

Thanks in advance,


PS - The app is called "Skimmin", and we help readers catch up on the news in the quickest way.

Andrew Muench
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