Worthworm, the first web-based valuation system for early stage ventures designed to generate a realistic, defensible and credible pre-money valuation (PMV) for founders seeking investment from angel investors, launched today.
Co-founders Alan Lobock (also co-founder of SkyMall) and Paul Jackson tapped into their experience on both sides of the negotiating table and designed the tool with the investor mentality in mind. Lobock explains that they plan to “fill the market void, by 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.”
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The Worthworm tool combines valuation methodologies widely accepted by seasoned angel investors, third-party valuation comparables and proprietary real-options technologies to go beyond providing just a reliable PMV.
“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,” said Lobock.
Lobock explains that the tool can give investors a screening mechanism, provide a way to standardize part of the due diligence process and help founders streamline efforts when developing a financial report.
“Founders spend hours upon hours customizing a spreadsheet which a seasoned investor is unlikely to accept as credible if for no other reason than the valuation method applied. [In other instances, they end up] spending thousands of dollars with a valuation firm,” he said.
Worthworm isn’t a product designed for one round of funding Lobock explains; it is also an oversight and strategic management tool to help entrepreneurs and angels evaluate opportunities, risks, and strategies amid the venture’s changing circumstances.
Today, Lobock announced that Arizona State University adopted Worthworm for their entrepreneur program, and many other notable institutions are in the process of adopting it as well.
Worthworm was conceptualized out of Lobock’s and Jackson’s investments in aerospace where companies used real options algorithms as a methodology to help a venture value assets in the context of risks and opportunities.
“Paul and I realized it fit in nicely with some of our future plans for the company but we had to come up with a use for it in the interim. It popped into our heads one day that pre-money valuation was an ideal use of the real options technology, and that is where the idea sprang from,” Lobock said.
Now to the product, the Worthworm system will include:
- Guided Questionnaire – The first step in Worthworm’s valuation process requires users to answer more than 70 questions, given in bite size amounts, focused on the key valuation drivers of an early stage company. The tool challenges entrepreneurs to think like investors to complete certain sections of the questionnaire, which will better prepare them for pitches and meetings with prospective investors and defend their valuation.
- PMV Report – With nearly 1,100 analytic parameters and more than 4,000 outputs, Worthworm delivers a PMV Report for each completed questionnaire. The report provides a summary description of the venture, its PMV placed on a valuation bar that estimates how much higher or lower the PMV could be based on market risks, graphs illustrating where the venture places with respect to key valuation drivers, and all of the questions and their answers to ensure full transparency between entrepreneurs and investors.
- Interactive Tools – After calculating a PMV, users also have access to a suite of additional tools that help entrepreneurs and angel investors maximize the venture’s PMV. These include the Risks Tool, which identifies in the form of a tornado diagram areas of uncertainty within the venture that could be mitigated to increase the company’s PMV; the Risks and Opportunities Tool, which highlights areas of opportunity in which the venture could invest to increase its PMV and compares these available increases to those to be gained by mitigating uncertainties; and The Next Steps Tool, which analyzes the key valuation drivers in a way that allows the user to develop strategies and tactics to maximize the venture’s PMV.
- Reports – Worthworm generates a number of comprehensive reports that can be quickly and easily downloaded and shared with stakeholders or investors. The reports highlight such key information as the venture’s projected capitalization table, equity dilution, and potential return on investment.
- Collaboration – Worthworm allows the founder to privately invite angel investors to the report and engage in a discussion.
- Pricing – Subscriptions range from $59.99 to $99.99 per month with the ability to invite two to 20 angel investors to the report and include additional valuation tools depending on level.
We talked with Alan Lobock, co-founder of Worthworm at the launch. Let him tell you about Worthworm; click here for our short video on AZ Tech Beat TV.