After the latest column on business valuation, I was contacted by Yahya, a young Omani entrepreneur who asked me if the valuation criteria presented could be applicable to his start-up.
A bit of context. Yahya founded a food delivery start-up in December last year and he is currently looking for an investor. The start-up has a mobile app — for iPhone only — that has been downloaded about a thousand times. There are only 20 restaurants on the app, most of which are not active.
Given the current status, the quick answer to Yahya is no, the valuation criteria presented in the latest column are not applicable to his start-up. However, there are valuation methodologies out there that could certainly help him to come up with a value to present to potential investors.
The Berkus method has helped thousands of pre-revenue start-ups to approximate a logical valuation. It pivots around 5 core elements and draws a picture that mitigates investment risk.
The five elements are:
1) Sound business idea as base value
2) Quality of the management team to reduce the investor’s risk when it comes to execution
3) Strategic partnerships with clients and or suppliers to reduce the risk of poor marketing performance
4) Existence of a prototype to reduce the tech risk, if the idea turns out to be unfeasible
5) Product rollout or sales to reduce the risk of failing in scalability
It is never an easy task to assign a dollar-value to an idea, but a good starting point is to compare similar ideas in similar geographies.
Yahya’s unit of comparison cannot be Uber Eats in the US. It must be a comparable successful start-up in Oman that has already successfully launched and delivered.
Yahya would need to work on his management team. At the moment his start-up is a part time one-man-show while he is completing his master’s degree. Although he is getting support from wise mentors, he should engage to have a co-founder or a CTO to take care of the tech side. Especially since the app was developed by a third-party tech company overseas and carries little value as an asset.
I applauded Yahya for having onboarded merchants on the app.
I know how hard that is, having been there before when I launched the ‘I LOVE OM’ tag. It took a team of 3 sales managers nearly 9 months to onboard the first 100 merchants.
But I clearly remember that the turning point was when we signed a partnership with – arguably – the most popular restaurant in Oman. Once they joined, every other restaurant joined much faster. So, I would urge Yahya to seal a deal with a prominent restaurant in order to accelerate growth.
Indeed there is a prototype available in Yahya’s case. That is a good thing for him to display when he is presenting to investors. If he could get to a base line of 100 transactions a month, then the pilot project could be considered successfully completed.
(The writer is a member of the International Press Association)