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.