Finance

How do you calculate or determine what your business is worth to an investor?

min read
Opinions expressed by Entrepreneur contributors are their own.
Calculating the value of a startup or early-stage company with limited sales and profits is always an arm wrestle between the entrepreneur and the investor. Unlike a public company with a share price set by the market or a mature private company with a track record of profitability, the only way to put a price tag on a company like yours is to show the investor your company's potential for growth and the likelihood for sale to a strategic buyer--the so-called "exit strategy." Since most investors look for a return of 5 to 10 times their money, an investor who put $1 million into company would be looking to pull out $5 million to $10 million (usually after an acquisition or IPO) after 5 to 7 years. You'll need a clear and compelling business plan with three to five years of financial projections to successfully make your case. FYI, professional investors typically buy one third (33 percent) of the company's shares in the first round of financing, so, if you're looking for $1 million, you'll need to demonstrate that your company is worth $2 million on a pre-money basis (that is, before the investor puts his money in).

More from Entrepreneur

Whether you are launching or growing a business, we have all the business tools you need to take your business to the next level, in one place.
Enroll Now

In as little as seven months, the Entrepreneur Authors program will turn your ideas and expertise into a professionally presented book.
Apply Now

One-on-one online sessions with our experts can help you start a business, grow your business, build your brand, fundraise and more.
Book Your Session

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.