Valuing your idea

Thanks for being here and taking a sip from the Fountain

Building something—whether it’s a business, a vision, or a personal goal—requires direction, conviction, and the ability to see value where others might not. This week, we’re talking about how to measure that value, whether it’s in a company, an idea, or your own future. From business valuations to personal goal-setting and a stock trade breakdown, here’s what’s inside:

In this edition:

Founder Lessons – How do you value a business? A deep dive into valuation methods and fundraising strategies.

Dream Cards – A personal look at my goals from the year 2000 and how small steps shape big outcomes + some headlines we saw this week.

Critique My Trade – Breaking down my ASML investment and the thought process behind it.

Let’s get into it.

⏳ Estimated Read Time: 7 minutes

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FOUNDER LESSONS

How do you value a business? How do you value an idea? Whether you’re raising money, or simply trying to figure out if you should go “all in” on an idea here’s what I think about when valuing a business.

I know of three methods to value a business.

A = The traditional sales/EBITDA (earnings before interest, tax, depreciation, amortization) multiplied by the industry multiples for an industry.

B = Market comparables from public or private sales.

C = The old “what is someone willing to pay”.

Those are three I was taught, and from there you can triangulate the approximate value. So if

A = 20 Million

B = 15 Million

C = 10 Million

Then we know the business is approximately worth in between 10-20 million and now we can use subset factors to get more precise.

The next questions are: What stage is the company in? What is the growth of the industry? What is the management’s track record?

Let’s say you’re raising money without a management track record, you’re a first time founder. This is where you have to paint the picture on your income statement and balance sheet.

TIP: when presenting to investors, starting out saying your valuation is “50 million” and then explaining “why” isn’t going to work. Explaining the value beforehand and then the valuation number will come up because it makes sense, without that initial “woah” reaction will go a long way while raising.

Instead: “Go to page 6, our revenues are X in a industry with a multiple of Y, with a discount rate of 80%, you’ll be investing at a 40 million dollar valuation and in 3 years it’ll be 50” If you’re a great entrepreneur, you’ll project out 3-5 years to paint a picture of value to investors. Investors aren’t getting it at the price today, they’re getting a discount from the price tomorrow.

Income statements are one thing, but understanding your balance sheet is also crucial as the sophistication of the investor goes up (Family & friends, private, institutional, etc). After the investment and growth what assets will you have, how will this affect the stability of the company.

When planning what investment you want to take on there are a few considerations.

What are you willing to invest? (NOT what are you willing to risk, because you’ll probably lose it all if that’s the mindset).

Plan out future rounds. When is the breakeven point and how many rounds do you want to finance? How many do you need to finance to get where you’re going. Where do you need to be for Series A, B, etc. Make a model, have a conservative, and worst case scenario (because entrepreneurs are usually quite optimistic).

It usually takes twice as long and twice as much money when starting a business.

Remember if you’re selling 20% of the business at each round your shares are going to dilute.

Final note on valuing a business, and more specifically valuing an idea.

Get a lot of independent views (not friends or family).

Gauge interest by the type of conversations you’re having and if you’re having conversations at all. If someone is willing to give you their time they’re usually somewhat interested. Are people asking buying questions or “F-off” questions. Can you steer the conversation to buying questions?

Enjoy this clip from the Boiler Room where he talks about exactly what I’m saying ⤵

Once you have interest you have to create urgency. Fundraising is like baking a cake, you need the ingredients and then you need time pressure.

Final tip: a lead investor is key. Once other people know you have someone who has “set the market” or has bought in the rest of the round becomes incredibly easier to fill.

Something I’ve been debating creating for you guys:

Biggest Crypto Theft Ever - $1.4 Billion Stolen from Bybit Who did it? Interesting to be part of the group to find the culprit and share in the 10% bounty.

Elon Musk Forced Resignation Email Did you get 5 things done last week?

Cut out the middleman—eggs are at all-time highs Egg Vending Machine

Dreams cards -  I have received a few questions about what the dreams cards are (I first spoke about the dreams card in Fountain #3) and for those who are new.

“A Dream card is a piece of laminated paper with your dreams written down”

Incredible how something that sounds so simple and can effect your life so greatly is not done by more people.   

How to start?

Step 1. Write them down. A piece of paper where you reflect and define what your values are. Where are the places you want to go? Who do you want to meet? What do you want to see? Who do you want to be?

One of my goals on my dream card is to share the dream card with more people, so selfishly I am achieving one of my goals today. 

Step 2. Take Action. The words on the paper won't do the pushups for you, but they can be the guide, the reason, the inspiration. 

Step 3. Ask for it. Ask the world for it. Ask the people for it. Ask what is the next step in my journey and then you will be surprised how far you can go. When you set a direction, when you set a destination.

So that is a small refresher and now we will get in the Delorean and go back to the year 2000.

I am opening up the kimono because it's better when people are honest and vulnerable. These are my 20 year old inner thoughts. 

Looking back now 25 years on, those little sets of the sail, set the course to where I have arrived today. Not by accident, with a lot of luck, but where I was setting out in life, hope this resonates this the 20, 40, and 60 year olds reading, listening (link here) or watching. (coming soon)

To summarize - the action you hopefully are feeling inspiration to try is to create your dream card, if you haven't already ;)