How do you calculate or determine what your business is worth to an investor?
I have an investor who is interested in all of my businesses that are linked together. She would be an angel investor but I want her to be more involved and she's fine with that. The amount she is willing to give me is up to me. And the money would be spread out differently according to nature of the business but she is leavign that up to me also. So do I sell them as a whole and ask for a lump sum or seperate themCalculating 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).
Rosalind Resnick is a New York-based freelance writer, entrepreneur, investor and author of The Vest Pocket Consultant's Secrets of Small Business Success.