I know that many variables are missing here, but very roughly speaking, how much are we worth at this point? There is interest by our competitors and they want to buy us, however I have no idea how much to ask for.
If a buyer has to pay a fulltime developer to replace you guys, then your business wouldn't make them very much, unless it keeps growing for a few years without cost increases.
The product can fit well into competitors portfolio of products and can make them much more than what we do (they are established, big, have sales channels, etc)
For example, if you commit to stay on some number of years and an exciting opportunity presents itself during that time, you want the compensation to be enough that you can pass on the opportunity without too much heartache.
Sounds to me like it's time to trade up, get a smaller piece of the bigger pie. Ask for cash + equity swap. Get some ownership in the parent organization.
For what you said you likely are around 10, so if the company doesn't need someone to sustain growth it would be worth around 2M. If it's a talent acquisition or IP does change the calculation somewhat. Now a year from now I would raise that multiple to around 12-14 if you maintain your growth rate.
What percentage of it are you currently servicing?
It's a very hard and competitive field.
Unless the answer is "We want to sell right now" then this exercise is a distraction...and a potential source of stress if you have 50:50 equity split.
If you want to sell now, then what is your ideal outcome when the value to the purchaser: is your IP? your staff? elimination of competition? And more importantly, what is your partner's ideal outcome in each of these scenarios?
Keep in mind that if your suitor's goal is to eliminate competition, just floating the idea of purchase can create enough chaos to cause a divorce. My best advice is to discuss what your company is worth to each of you first.
As far as value goes, you're producing revenue of $100,000 per full-time employee. That doesn't leave much cash for a new owner so a valuation based on current revenue would not be favorable to you. From a revenue standpoint, you're basically a small business.
If the compeitor sees the potential value is in the IP, the real question becomes, how much would it cost them to deliver competing functionality? That number may be a lot less than you would want to sell for.
If the motivation is to bring you and/or your partner onboard, then you're back to do you really want to sell + do you really want to go work for those people? So the price is relative to the value you place on the company.
Sorry there's no numbers. My best advice is to determine quickly if both of you even want to sell and get back to building your business until there's actually an offer to consider. Good luck.
You are "worth" what they are willing to pay, it's that simple. In terms of money, you're worth about a million dollars. But it wouldn't be that weird to get much more, depending on how good you are at handwaving about "strategic value" and "exponential growth", and playing the negotiation game.
Assuming you can go on forever, you are a perpetuity with annual growth g = 79.58% = ~80% (1.05^12 - 1), coupon c = $200,000, and some value of discount rate r, which you could otherwise get with your money. For our example, we'll suppose you can invest somewhere and get a 10% return.
The formula for a growing perpetuity = PV = c/(r - g), where PV is the present value. This formula only works if the growth rate is less than the discount rate... following this rule, we have to use a higher discount rate, so we'll assume you can get 100% somewhere else (let me know if you have a place where you can do this.)
If you take the series of system payments, then you would have:
PV = c/(1 + r) + c(1 + g)/((1 + r)^2) + ... + c((1 + g)^n)/((1 + r)^n) which ultimately equals PV = c/(r - g)
PV = 200,000 / (1.00 - .80) = $1,000,000
So $1,000,000 is the amount someone would be willing to pay for all the present values of all future earnings on the perpetuity, assuming you have an r = 100%.
If g > r, then the growing perpetuity would (theoretically) have an infinite value.
edit: added value = $1,000,000 assuming r = 100%
Think about how you're going to feel after you've sold. At what price will you not regret it? At what price will you be really happy?
If you keep the company growing at this rate for another 3 years you'll have an annual income of over a $1M.
So how many years are you planning to run the business for? What is the likely sustainable growth?
Do some maths on that.
Assets - liabilities + 5 X last years profit.
This is a starting point. Then you add in all of the confounding factors. Web businesses are nothing but confounding factors! If I were you, I'd take a hard conservative look at my 5 year growth potential based on the growth thats already happened and use that as an average for your 5 X profit.
If your buyers are serious this will open negotiations, if they were just pulling the handle, hoping for a jackpot, they'll leave in a huff, trying to make you feel as though you'd demanded an unreasonable sum.
If you can convince them the growth will accelerate, so much the better.
