How to value a company that isn't running?

The easy answer is that unless you have some sort of technology with you, source code or some patents the value is 0,-

I don't think the value of your company is of any importance at this stage.

VC's certainly wont look at that but rather at the potential of the market, how big a share you will potentially be able to get of that market and how you are going to get it.

The second you start to actually develop the product it will begin to gain value but it is counterproductive IMO to look at valuation of the idea of a company.

Early stage valuations are very imprecise, it's a lot about gut feeling and trust in many things -- not just trust in the business plan, but also in the founder, in the market vertical, and in the global economy outlook.

fm has some good advice. Additionally, you absolutely want to network with other entrepreneurs in your local area and follow websites like TheFunded, TechCrunch and others to get a feel for valuations in your market.

The 3 main things I would focus on today if I was pitching investors today are:

1. Before pitching, build a market analysis around Lean Startup methodology, and get clear validation of a market need.

2. Before pitching, build a prototype implementation, and get at least a handful of customers on it.

3. When pitching, grab as much money as you think you can get away with. There may not be another series of financing available.

The above is clearly motivated by my belief that venture capital is pretty hard to come by right now.

At this stage, you need to worry more about your business than what it's worth. The best thing to do is build a financial model that takes your financials out 3-5 years. This shows that you understand what it will take to build a profitable business.

Once you have that, then doing an evaluation will be a little easier. Don't get me wrong, you do need to have a rough number but that's only for a sanity check at this point.

One thing to keep in mind is that VC's will already have a number in their head as to what it's worth. That number will be pretty hard to change. Their evaluation of your company will be dependent on your financial model and how well they think you can execute.

In general, VC's don't read business plans. They look for three things:

• Executive Summary
• Pitch
• Financial Model

Work on getting those perfect and the evaluation will naturally come out.

This was posted today, it's really relevant to the question: http://www.avc.com/a_vc/2010/01/valuing-stocks-today-and-tomorrow.html

Usually companies are valued by some multiple of something -- often $sales, sometimes inventory, sometimes registered users, etc. Knowing nothing about your company, let's value it at 3x sales, which is kind of in the middle of the road (sales is a reasonable metric for a B2B product company; most B2C online product companies use users; a service company will use a lower multiple).

So what will your sales be? (Or users, or inventory, etc.)

Don't even try to raise money until you can answer that question in some reasonable way.

Hopefully your research has given you some reason to think you can answer this. If not, do more research.

Then, as fm says, you need to know how much it'll take to get you started. That'll tell you who you need to ask for money. Need $$$millions? VC. $$$hundred thousands? Angel. $$$ten thousands? Friends and family. If you fall in the third group, then mostly you want to ask for something that your friends and family will be comfortable taking, since they mostly want to help you. Value your company so that it works out right and is vaguely defensible by the metrics above. If you fall in the second, don't worry, the Angel won't try to take too much, use the same valuation. If you're in the first... then you need a lawyer.