Microcosm - 2nd Seedrs crowd-funding round

Happy for you to do so offline on email or whatever but can you be more detailed about how you've arrived or will arrive at your new valuation?

Sure thing.

It's still mission impossible without substantial revenue, and we are still in the early stage of getting the product right for the market we're aiming at... but I'll give you the gist here, and am happy to come to Wests and answer in detail. I won't share any detail of the opportunities online, but happy to do so offline.

First, our original valuation of £500k was too low. We based it almost exclusively on the acquisition offer for LFGSS and myself, and because we did not have what we felt were any assets we didn't factor in much else, we didn't even have staff, nor IP, nothing. That is, we are what the market thinks we're worth, and we just used that figure for the first valuation.

The new valuation is much the same in that we are what the market says we're worth. But whereas in the first valuation the figure came solely from the past and the past was LFGSS, the new figure comes from what we've achieved to date, what it would cost to build the equivalent, the assets now owned, and the revenue that is expected if the opportunities on the table are realised as a result of the investment.

We haven't reduced those things to line-item numbers, as some things vary from day-to-day (i.e. the email I received yesterday morning from a publishing company enquiring as to when we'll have the product available for them to use would greatly change any revenue numbers, and as not all opportunities will come to pass I am erring on the side of caution in guessing multipliers).

What we generally factored in:

1) We now have IP in the product architecture and implementation

2) We now have an actual product launched and a couple of genuine customers using it on a small scale (proving some product to market fit, small traction)

3) To build similar without our knowledge and domain expertise would require a dev team of a couple of people for a couple of years (it's not mission impossible but they'd have to figure out things we know from domain experience), the cost of that is substantial (and part of the value of the company)

4) We have the trademark for Microcosm

5) The market opportunity from one major customer has the potential to put us into the most profitable segment of the market from day one, and on a decent scale within that segment

6) Conservative projections without including that major customer but generalising the other go-to-market strategies were already fairly sizeable

7) We still have the historical offer for just LFGSS valuing the worth of a company hosting a site this size

8) We have a load of physical assets (drop in ocean compared to numbers above, but this number we know more accurately)

We took that and created a lower and upper bound range for the valuation, and shared the figure with the accountant, Seedrs, lawyer, and a few very seasoned (greybeard) investors to basically see what they thought was a fair valuation within that range (or to tell us if our estimation was junk).

What we were told (summary of all opinions) is that we could easily argue above the London average, but that a £2m figures put ourselves in the average valuation for early stage funding in London and no-one would have a problem with that given what we have accomplished to date.

An indication of the London average for early stage investment can be found here: http://citymeetstech.com/2013/06/stats-for-pitch-event-on-the-20th-of-june/

Another investor (who is likely to be in on the £100k round as well as the £400k round) suggests we could justify a substantially higher valuation, but reckons that we're very smart to offer the £100k to end users based on a lower valuation and to use that event to then demonstrate social proof of the product and increase the valuation before we actually start the £400k round. We hadn't thought of that, but we have now.

In essence, the valuation we're thinking of is roughly the average for London for the stage we are at, whereas others feel we should be more aggressive and go higher. I prefer to value fairly and not to overemphasize parts, so I'm happy going for the average if actually it's a figure that few would dispute and I can defend easily.

The really big factor is the market opportunity, which is the very reason we want to take investment to hire and grow. We do not expect all of those opportunities to come to pass, so we're not summing them and multiplying them... we are estimating potential revenue over 3 years based on the eCPM (effective revenue per thousand page views) rate that LFGSS earns, and only based on achieving half of the opportunities that are available to us. Hence the valuation, and hence the view that even in the ballpark of £2m we could still be undervaluing. I don't want to overvalue though, as it may create problems for future rounds of investment, so we'll stick with being fair and realistic.