Is my time worth it? Pre-Money Valuation and the Burger King Opportunity Cost


You have to be thinking to yourself, what on earth does Burger King have to do with startups. Well, a few months back I was talking with a colleague regarding startups, projects, and someone wanting to buy a portal we had developed for a small sum, and the concept of the burger king opportunity cost came about.

In a nutshell it’s a way to quantify if the time spent working on your project is paying off, or if it’s an utter and complete waste of time, i.e. is my startup worth more than the money I could earn flipping burgers at Burger King.

Now, valuing a startup is no easy task, and most current tools are used to assess whether or not to invest in a company, not whether the entrepreneur’s time is worth the commitment to the idea and startup. However we need to understand and employ these methods in order to find out if you’re time is worth it. Depending on the stage of the startup, methods utilized by investors are

Anticipated Return on Investment (ROI) – which basically states that an Angel Investor should look to invest in companies that can yield 30x Return on Investment, i.e. 100k invested -> 3million return.

Why so high? Startups are RISKY investments and on average at least 50% will fail, as an investor, the portfolio of companies invested in should ideally bring in between 10x-50x ROI. Anything less, doesn’t justify the investment. Can your startup compete with this?

Venture Capital Method – which in its simplest form is

Post-Money Valuation = Discounted Terminal Value / Cash-on-Cash ROI

Post Money Valuation – is the valuation of a company immediately after a round of investment is closed.

Post-Money Valuation = Investment + Pre-Money Valuation

Terminal Value – the valuation of a company at exit, meaning the proceeds from the sale of the company via M&A, IPO where investor ownership is liquidated

Cash-on-Cash ROI – the cash-on-cash return on investment expected for said investment in the year of harvest (exit).

To calculate your BK Opportunity Cost, you have to get the value of your startup today. But how do you do that?

Fundamentally, we have to look at two things.
1. Is your startup able to bring in a ROI of 30x for an angel, and if it is
2. What is its Pre-Money Valuation in the Angel Round, meaning now.

Burger King Opportunity Cost

So for the sake of the exercise, let’s assume the following.

You and your partners own 100 shares of Startup Ltd, which is 100% of equity. And say you’re looking for investment into Startup, Ltd. of 100k in return for 20 newly issued shares, the implied post-money valuation is:

(€100k) * 120 / 20 = €600k

To calculate the pre-money valuation, the amount of the investment is subtracted from the post-money valuation. In this case, it is:

€600k – €100k = €500k

So you and your partner dilute your ownership to 100/120 = 83.33%.

To get the Burger King Opportunity Cost of your business you follow the formula

Pre-Money Valuation – Investment in Project ≥ Possible Salary Received from Working at Burger King * Partners * Time

Using the above example, Startup Ltd. has three partners, you’ve been working on the project for a year each, your Pre-Money Valuation is at €500k and say you invested in the company €100k. And, assuming the annual salary of a burger king employee on a monthly basis is €1000, Your BK Opportunity Cost would then be.

€500k – €100k ≥ €1k * 3 * 12 = €400k ≥ 36k @ BK

Woohoo, it was better off for the guys Startup Ltd. to start the project than to flip burgers.

Why? Because the opportunity cost of starting Startup, Ltd. is greater than the minimum sustainable wage that you can have in order to survive, and for that specific reason we’ve used Burger King, and not the salary of an iBanker, Engineer, etc… however those salaries can be easily applied to the opportunity cost formula.

On the other hand. If Startiup, Ltd. is not able to get Business Angel Investment of a 100k, and instead are only  are able to sell their work for €20k, then the BK opportunity cost is €20k ≤ 36k @ BK, and it’s reversed, meaning their time would have been better spent flipping burgers.


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