I’ve spent the last week or so working with a friend doing research into an online company. Early in the process we mapped out the issues that needed addressed and the basic criteria that we’d need to confirm before making the offer.
The initial research has shown a good company that has plenty of room for growth so we moved into the process of putting a number to our offer. Similar to buying a house, the value of a company is pretty pretty subjective. Yes, there are some basics – one doesn’t pay $5 billion for a company earning $10K a year but many of the final factors that constitute the initial offer and maximum offer are very subjective. What are other companies selling at? The organization is worth more than just one year’s earnings but what do we use to create the final value?
We’ve found a pretty agreeable number for the value today so I’m spending the early part of this week trying to find the right multiple to create the final valuation. I’d love to hear from anyone who has experience doing valuations for small online businesses. Your time and any help you can provide would be greatly appreciated.