Valuing early stage / pre revenue B2B e-commerce startups

How would you value it at pre-revenue or as early stage for B2B ecommerce? End goal is to raise 200K USD at minimum.
1. Is DCF even the right direction, if not, what is the best way? Projecting revenue seems to be difficult given how early stage this is.
2. What are core components in a strong pitch or story? I have some experience in making investment pitches but startups appear to be grasping for straws.

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Comments (9)

Feb 18, 2020 - 11:11am

Item 1: You do need a forecast (maybe 2 or 3 scenarios from base to optimistic) to show that you can be cash generating at some point. Personnaly I would include a DCF to substantiate the dream value (but do use a high discount rate as you will be equity financed for the foreseable future and this is just a super high risk company (>20% sounds about right to me). Thinking of it, the DCF can actually be very simple: explain the steady state situation in 10y from now: (x million of sales, EBITDA margin of x, capex of z, etc.) on which you apply a perpetuity (with a more reasonable WACC by then). Question then is: how long will it take you to get there (discount the terminal value by those years at high WACC) and how much cash will you burn in the meantime (discount by high WACC and subtract).

Item 2: Explain size of the market you are targetting (current expenditure on competitor's software or why this is a new pocket of software revenue), box economics (how expensive is it to acquire 1 new client (sales reps, start up costs, training, etc), churn (no data on that it seems) and especially focus on why would people take the effort to switch? Especially the reasons to switch are super important as switching software providers is such a pain in the neck (training of your employees, switching costs, etc etc).

Have a lookt at this: https://piktochart.com/blog/startup-pitch-decks-what-you-can-learn/

Feb 18, 2020 - 12:03pm

Use creative metrics for valuing these investments eg. EV/user count ?

Array
Feb 21, 2020 - 10:04am
DapperSuits:

People actually use that for e-commerce? Sounds wild

Have seen that used in companies making money off apps.

Array
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May 4, 2021 - 5:56am

Various scenarios can really help you with this question. B2B is a huge area, so you can replay several development options by referring to the structure that will be more effective for your field of activity.

May 4, 2021 - 10:07am

At preseed/seed it's largely driven by TAM and the founding team's background. Lol don't make a DCF for a pre-revenue company. DCF is fucking stupid for something with $20M in rev let alone $0. Like the other poster said, you'd probably skip valuation entirely and use a SAFE.

Read Brad Feld's "Venture Deals" book before you raise any money at all.

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