One of the challenges for investing in startups has always been the lack of an established way for founders and investors to actually measure and decide on the valuation of the startup concerned. But newly launched Worthworm (www.worthworm.com) aims to do exactly that – the web-based system was designed to help develop a realistic process to determine pre-money valuation (PMV) for early-stage ventures seeking investment from angel investors and the like, facilitating negotiations between both parties as a reasonable starting point for investment negotiations.
“The reality is that there has not been a reliable, simple, or cost-effective way to calculate an early stage company’s valuation – which is why so many entrepreneurs and angel investors get it wrong,” says Alan Lobock, co-founder of Worthworm. “The alternatives to Worthworm are spending hours upon hours customizing a spreadsheet that a seasoned investor is unlikely to accept as credible if for no other reason than the valuation method applied, or spending thousands of dollars with a valuation firm. When you are clocking 80-hour weeks building your start-up from the ground-up on limited funds, neither of those options are attractive.”
“Worthworm is designed to fill the market void, providing users with an affordable, rigorous, web-based valuation system that derives a reasonable and defensible pre-money valuation from which entrepreneurs and angel investors can begin negotiating,” Lobock adds.
Worthworm applies to a user’s data a blend of the valuation methodologies widely accepted by seasoned angel investors, third-party valuation comparables and proprietary real-options technologies to generate not just a reliable PMV, but also help all parties understand what kind of risks exist and can be mitigated, as well as the opportunities that can be exploited to boost a venture’s value. The Worthworm system includes various components for that, starting with a guided questionnaire of more than 70 questions focused on the key valuation drivers of an early-stage company, a PMV report that includes nearly 1,100 analytic parameters and more than 4,000 outputs, followed by interactive tools that measure risks and opportunities, as well as comprehensive reports highlighting key information such as the venture’s projected capitalization table, equity dilution, and potential return on investment (ROI).
Lobock believes that Worthworm is one of the strongest tools in an investor’s arsenal, providing them with a consistent framework with which to standardize the screening process or later due diligence. “If you are an angel investor and a venture is seeking capital from you, insist on getting its Worthworm report. And if you make an investment, insist that the venture update its Worthworm report throughout the year so you can track its performance with respect to key valuation drivers and evaluate its strategies based upon the venture’s changing risk and opportunity profile.”