If I had a penny each time a client asked me this question, I would’ve owned all their startups.
![Entrepreneur's Handbook](https://miro.medium.com/v2/resize:fill:48:48/1*8sfeJBcpkpaPmv9Epi2Pjw.png)
You were playing around in your garage, and you invented something called The Blabla Maker. You decide to sell it. It’s your entrepreneurial thing now.
You put a table outside of your garage and present your product. Someone comes by and loves The Blabla maker. They’re very interested in owning it. But there’s a problem — you have no idea how much to charge.
You see, the Blabla maker is the first of its kind. You could just say that since it cost you X, you would charge double that. That’s not a bad idea. But what if that person is willing to pay 10X your costs? It’s crucial to know this.
You: “Why? That’s just greed? Take your 2X and go home.”
If we settle for 2X, your neighbour will show up the next day with The Blahblah 2 Maker, a copycat product that sells for 10X. You’d think that people will come to you because your product is cheaper.
However, if you see a Coke for $1 and another soda brand for $0.01, which one will you buy? There’s a specific range that just makes you suspicious.
I can’t help you with the Blabla Maker, but if you have a startup and someone comes over to invest in your company, you’ll face the same question — How much equity should you give them?
PS — I’ve developed a cool minimalist financial model for pre-revenue subscription businesses if you’re interested. I spend 96% of my time working on my newsletter — Here’s a link if you wish to become part of my network & access that template (this one is for my paid subscribers).
Eventually, the model has a part that includes this (it’s a slow GIF):
The truth is, when you don’t make money or users, it is extremely difficult to project something tangible. You could do everything in your power to make this clear to the investor. But the investor could just say, “Meh, I don’t buy it.”