How do I value a 5 yr old Pre-revenue start-up which has developed a Carrier and network independant Instant Communication Platform for mobile users.
The real answer is whatever someone is prepared to pay for it but a practical approach to working out goes something like:
Value based on need
Have a look at what it would take to make it revenue positive to the point that it is self sustaining ... or it has its exit (like a buy out which is a good target for this category of technology).
This number should be 30-40% of the overall value, which is the amount your prepared to hand over to other investors.
Value based on potential
This is less accurate and very hand wavy. If you can execute and can get into somewhere and get the uptake / adoption required to take say 10% of the market space in 3 years. Then what is it worth to have this market size (eg it will bring in $25M per year). A buyout at this point should be around $50-$80M ... so therefore your investors get 30% of this, if they are VCs they want a 10X result and thus you can work out what 30% is worth for them.
Combine both of these approaches to give you a good feeling for the range that works for you viable startup. Basically the lower end is how much you need to succeed. The higher end is what the investors will get out of it if everything works out well ... works out half well is also worth going through.
Good luck, let us know what you come up with.
Can you show some performance? Performance doesn't have to be revenue it can be a viable product with X non-paying customers.
Jason Calacanis speaks of the 3 p's. I sort of investor check list
Product - You have at least a minimal usable product. You have shown an ability to execute.
Performance - You have some users, dont have to be paying. This somewhat validates your product.
Promise - Using data / lessons from your "product" and "performance" you should be able to speculate future performance and product direction.
At best you will be speculating, so you need to think of the above to build your educated guess to add some weight to your argument when negotiating.
It will then be difficult to use methods like Discounted Cash Flow, but you can still try. I would to get the other party to make an offer first, just don't wait for too long for them to arrive at a bid, because it will be very difficult for them as well.
Maybe you can reduce the risk of spending a lot of time with no result by saying that you expect something in the hundreds of thousands of dollars for example.
In the end, it will simply be the result of negotiation without any facts, which works as well.
Do you not have any revenue at all or aren't profitable?
that's a very big difference. I feel that if you go to VCs, equity firms, or private investors, in either case you need at least some sort of business model. Even a theoretical way to monetize. Otherwise it would be useless to invest, and if they do invest, the likely thing is you will get a tiny percentage of what it is actually worth, because they have a method to monetize it.