Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open.

Calculating Pre-Money Valuation for Startup
Putting a dollar amount on the valuation of a start up business is an art form that often has very little at all to do with any real numbers and more to do with your "salesman" abilities when talking with the VC. That said, there are a few starting points: First is past sales, the cost of those sales and a (hopefully) realistic growth curve.  However, you don't have that so this gets harder. Do you have any actual assets?  Machinery, computers, desks, patents, etc.  Things that you actually own.  If so, then add those in.  If this is a software start-up, "code" is an asset, but without sales it's incredibly hard to put a value on it.  The best I've come up with is "How much would it cost for someone else to build it .. after they've seen yours".  Yes, you may have spent 5,000 hours building something but could someone else duplicate it, or at least the major parts, in 200 hours after seeing a demo?  Use the lower number. If I was you, I'd look hard at my business plan.  Hopefully you were as honest as you can be when writing it (and that it is as researched as possible).  What is it going to take to get that first sale?  What do you actually need to get there? (hint: your logo on the side of a building is NOT a necessary expense.  Nor is really nice office space.)  Once you have that first sale, what is the second going to take?  Can you extrapolate out to 3 years?  How many key members are there?  How much is their contribution worth?  At what point will you be profitable?   Next is to look at risks.  You haven't done this before, that's huge - I'm assuming simply because you asked this question.  Another is competitors - hopefully they already exist because opening a new market is incredibly hard and expensive; on the flip side, hopefully there aren't that many because entering a crowded market is equally hard and expensive.  Note: each are possible, but take radically different approaches and sums of money - and $200k isn't going to cut it no matter what it is you are selling. That said, competition should be able to at least point you in the direction of a price point and estimate for how long sales take.  If any are publicly traded then you have additional info to help you set a valuation.  Are there any potential regulatory or legal issues? What happens if a key member leaves, dies or is otherwise no longer available?  Insurance only helps so much if the one guy that knows everything literally gets run over.  God help you if this person likes to go skydiving. I bring risks up because you will have to surmount them during this negotiation.  For example, asking for $200k with zero hard assets, while trying to sell software to government agencies assuming a 3 week sales cycle will have you laughed at for naivety.  Whereas asking for $10m in the same situation, with a team that has governmental sales experience would likely work. Another big question is exit strategy: do you intend to IPO or sell to a competitor or a business in a related category?  If selling, do you have evidence that the target company actually buys others, and if so, how did those deals work out?  What did they look for in order to buy?  Exit strategy is HUGE to a VC and they will want to make several multiples of their money back in a relatively short amount of time.  Can you realistically support that for how much you are asking for?  If not then going through an Angel group would be better.  They have similar questions, but very different expectations. The main thing is that no one knows what your business is worth because it is 100% unproven after 2 years and is therefore a huge financial risk.  If the money you are asking for is to complete product development then that risk factor just went up radically as you aren't even talking about sales.  If the money is purely for the sales channel, then it's likely not enough. However if you know what it's going to take to get that first sale and have at least an educated idea on how much it's going to cost to repeat that then you should have an idea for how much money you want.  From there you need to decide how much of the business it is worth to you to give up in order to get that money and, voila, you have a "pre money valuation". The real trick will be to convince the VC that you are right (which takes research and a rock solid presentation) and negotiating from there.  No matter what offer a small percentage of the business for the money you want and realize you'll likely give up much more than that. A few things you should know: usually by year 3 it's apparent if a start-up is going to work out or not.  You're in year 2 with no sales. That doesn't look good unless you are building a physical product, have a competent team with hard experience doing this, have patents (at least filed), a proven test product, and (hopefully) have a few pre-orders and just need cash to deliver.  Although in that situation, I'd probably tell you to ask your friends and family before talking to a VC.  Even kickstarter.com would be better.   $200k just isn't a lot of money and should be very easy to raise from Friends or Angels.  If you can't then that speaks volumes to an institutional VC.  A plus is having two or three people financially invested in the company; more than that is sometimes a problem while having only 1 is a red flag. If it's a web thing and you've been doing this for 2 years with zero sales and still need another $200k to complete it then I'd say you need to take a hard look at what you've built and take it to market right now.  If you can't do that, then I'd say it might be time to abandon this idea and move on as you'll likely have to give up 80%+ to get that $200k and most VCs I've run into wouldn't bother at that level.  Which begs the question: how did the conversation with the VC start?  Did you approach them or did they approach you?  If the latter, how did they even find out about you?  Do they actually know anything about you or is this a fishing expedition?  If the latter, then this is probably a complete waste of your time. The above is only a rough guide because at the end of the day something is only worth what someone else is willing to pay.  $200k in cash is a tiny sum for most VCs, so without more information I have no clue why one would be interested in you. I put a number of hard questions and statements in here.  I don't actually want you to answer me, those are for you to think about.  Also, none of this shouldn't be taken as a discouragement, rather it should shock you into a realistic viewpoint and, hopefully, help you understand how others are going to see your baby.   If the VC has done a bit of research and is actually interested in investing then they will bring up all the same things (and likely more) in order to convince you to give up a very large part of it.  The question you have to ask yourself is: is it worth it?  Sometimes it is, often it's not.