First, have a mind that an idea by itself is doesn’t have any value. The value of an idea is given by the promise of delivering a service or a product in the future. A business that is not producing anything, only has a value if a potential investor identifies the possibility for an idea to turn into a reality.

If you are thinking to exchange equity for services, think about the people who are offering services as potential investors and partners. Moreover, consider that if you want to offer equity of your start-up, it is necessary to be aware what is the stage of your project and make an offer according to this. For example, if you have just an idea, you probably have to offer a bigger share of equity compared with someone who has a prototype or even some sales.

The risk is proportional to the expected return. This means the higher the risk an investor is taking (this includes a person offering a service in exchange of equity), the higher the percentage of equity they expect to compensate the risk.

It is better to own a small percentage of a company than the whole share of an idea. If you don’t have the skills or the money to execute an idea, doesn’t matter how good it is, its real value is zero. Our advice, partner with people with the right skills and start working. The value of a team with interdisciplinary skills is higher since the risk of failure is reduced by the additional skills that new people bring into the team.

If you want to gain exposure to technical information and proper valuation methods, consider reading about the following:

• The Dividend-Discount Model.
• The Total Payout Model.
• The Discounted Free Cash Flow Model (DCF).
• The Valuation Based on Comparable Firms.
• The Venture Capital Method (VC)

To read about these we recommend three sources:

• A book by Jonathan Berk and Peter DeMarzo, Corporate Finance.
• A technical note from the University of Virginia Darden School Foundation by Susan Chaplinsky, Valuing Early-Stage Company.
• A technical note from the University of Navarra IESE Business School by Professor Carles Vergara-Alert and Arnau Gil, Multiples in Firm Valuation.

How to set a value to your projects and tasks?

To set a price for a task, that you want to outsource, it is necessary to complete a small market research that will allow you to identify a market price. Take in consideration, for example, if you want to build a website to promote your start-up in Australia, it would be a good idea then to find out what is the average cost charged by a software company in Australia. This could be a good an indication of a price ceiling. After this, if you want to outsource the activity with a freelancer in Australia, then you would have more information to complete a good negotiation, after all you know how much you could spend with the software company where you initially quoted from.

In another case, if you are trying to outsource an activity from another country with the objective to find an arbitrage, then you can follow the same logic. First, find out the cost of the activity in you own country, then quote the activity with a company or a freelancer in the other country and then compare the results to see if you are satisfied with the benefits obtained. If you want to obtain better benefits, it is highly recommendable to complete further market research. For example, in the same case of the web page it would be beneficial to understand the average salary of a software developer in the country you are trying to buy from, and the approximate time required to build the web site.

Finally, to cost a project is just a matter of adding all the tasks integrating the project to obtain an approximate cost of the money required.