I never knew so much went into investing.  Yes, I know each side does their research, interviews the business owner, and brings money and knowledge to the table, but when you think about it, some have millions on the line.  So of course everything needs to be addressed.  Valuation is about placing a price on a stake in a company, based on future, potential capital return. (Amis & Stevenson, 2001) 

            One method discussed and most traditional angel investors invest at valuations of between $2m-$5m with $2.5m being the sweet spot.  They also discuss that if they ask for less than $2m, they are unsophisticated or lacking in significant progress and if they ask for more than $5m, they either have dollar signs in their eyes or are quite advanced and really ready for venture capital and not an angel investor.  It is really interesting to read these different assessments or opinions on these methods.    

            I feel that before we can seek out an angel investor, we need to have or business plan done and solid to show what we have to offer.  An investor of course is going to their own research, but have the valuation ready for them, research the investors yourself first and don’t waste their and your time if you know it will not be a right fit. 

            As the business owner, we feel our business has so much value.   Part of the process that needs to be understood is not every investor will feel this way and that is okay.  Our job is to show every investor the value and show they do not want to miss out on this journey.   

Winning Angels: The Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.

5 Comments

  1. Katherine,

    I love your last point about showing an investor the value and why they don’t want to miss out. I think the pitch of the business idea and plan is so important because you aren’t just selling the business, you are selling yourself as well. I also liked you point that not every investor is going to see the value the way you do. That is ok. Those are just probably not the investors to partner with. The right investor for you should see the same vale and potential that you do. Great insight!

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    1. Zach,
      I agree, at the end of the day, you are selling yourself, not just your product. Building these relationships and networking is so important. You never know who you will meet that may be the answer you have been looking for.

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  2. Katherine,
    It does make your head spin a little when you start thinking about numbers like 2.5 million. I suppose that is a large number for the common folk, but it’s just another opportunity for an experienced angel investor.
    I believe one of the hardest things for us budding entrepreneurs is having our ducks in a row for angel investment. More than likely, we will feel prepared right up until the point they start poking holes in the plan. The most important thing is to be passionate about what you are doing or selling, and everything else will fall into place.

    Joe Rudy

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  3. Hey Katherine,
    I was also really surprised by the detail that the authors went into when describing the different valuing methods. It was really kind of overwhelming for me, as I am not a numbers person. I am more of a concept person. I thought it was important that the authors also noted that what seems like a good deal to one investor might not seem as good to another because everyone has their opinions on what is and what isn’t important. So, what I value highly may not be the same as what you value highly. We may not want to invest in the same deal.
    Great post!
    Bri

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  4. Hi Katherine,
    I think you make a great point about not wasting the investor’s time, but also don’t waste your own at these meetings. Doing the research ahead of time means knowing what they are after, but also allows you to make sure you have everything they’ll need and don’t end up leaving money on the table and wasting the time of the meeting. I also love your point about understanding that not every investor will see the value of your business. Not everyone will be interested in what you have to offer and that’s okay. Being able to receive rejection is maybe the most important part of starting a new business.

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