The 7 fundamentals of early stage investing – “Valuing”

Valuation is all about estimating how much something is worth, in other words what’s the monetary value of your company?

  • How much is your company worth?
  • How much money are your trying to raise?
  • What amount of ownership are you willing to give up?
  • How long do you expect the first initial investment to last?
  • Do you have a two year financial projections?
  • What key components determine the pricing for your product and/or service?
  • Can you predict gross margins?

Angels price your company based on its potential capital return in the future.  They look for the potential gains they get in return for their investment.  Angels want to look at the time they will have to invest, how much they will make in returns, how is their reputation going to look if they partner with your business, value their contacts, and they could just be investing because of the excitement of launching a new start-up company.

David Amis-Howard Stevenson (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.

  • Christina,
    I enjoyed your posting. Straight to the point. You are exactly right. Valuation is when someone places a value on your goods, services, management, operations, and so much much. I think most entrepreneurs typically valuate their business pretty high because it is their baby and they can see the potential. Whereas, investors see potential but base valuation off of here and now and consider future for their overall return on investment.

  • Christina,

    Valuation seems to be one of the trickier subjects, simply because it can vary so much from investor to investor. Lane made a good point by contrasting it to the price of gold. Gold is a constant, agreed upon valuation. But with businesses, the value is subjective to the actual investor – and also the plethora of terms and deal structure that could either entice or turn away an investor.

    Austin

  • Hi Christina,

    I would agree that angles will factor into this process their time and energy, as well as the potential for the financial ROI. As Austin, each angel is different and therefore may weight the time spent on an investment differently. If you were an angel investor, how much weight (as a factor) would you place on your time when considering an investment?

    -David

    • Thanks David for another great comment. Time is money, right? Time is the biggest thing that I never have enough of. As I get older, I have to make time for those things that matter the most to me, and let other things go. We all have 24 hours in a day, so it’s how you plan and execute that time is what you make of your life and business. But, I would def. consider the time aspect in any deal. I currently turn jobs down, because I just don’t have the time to do it the right way. I guess I need to start thinking about expanding and hiring someone to help me!

  • Value and time commitment for ROI are critical to securing the right investor. They can be excited about your start-up but there is still money on the table to be turned quickly turned around. We need to be able to articulate that cash in period with confidence to gain the investors trust. We are selling ours and our product/service at the same time. Arming ourselves with answers to your questions will help us nail the deal.

    • Who knew there was so much work involved with starting a business. And your thoughts are correct, we need to be prepared so that we can nail the deal! Thanks for the comment!

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