ForumsStarting a Business

I'm not sure why you would want to switch into an "S" corporation. If you plan to raise capital, you probably should be a "C" corporation. "S" corps is fine for small professional service type companies but have limitations on number of shareholders and other business structure that "C" corps does not. A "C" corp. should probably be used if you are expecting significant growth and plan to raise a lot of capital from investors. From the sound of it, I think you are at a stage where you need to bring in an experienced business attorney and CPA to discuss these things and give you professional guidance before you move in a direction that you have to change later on.

If you have the type of interest and strength of Management & Board, you mentioned (Oprah, SVP Adobe, and CIO NY Times ... your Google experience) ... then don't dilute or weaken it by making miss-steps early on. Get competent professional help to structure your business appropriately and to set a good foundation for the business going forward. This is very important.

It appears you have a lot of intangible, intellectual property and those can be hard to put a valuation on when you are a pre-revenue company. If you have comparables to existing businesses in your space those can be used as an example of value for your business if you are able to execute your business plan. A CPA or business valuation expert can probably help you come up with a valuation range but keep in mind that is a hypothetical and valuation is in the "eye of the beholder" ... by that I mean when you sit down with a VC, they may have their own ideas of valuation range for your company.

Unless you have a compelling reason to focus on establishing that valuation range right now, it is probably more important to put together your business plan including 3 to 5 years pro forma financials and to show your break-even point and projected cash flow. Those numbers will show how your "intangibles" translate into "tangible" income and profits. Then another valuation based on the business operations can be extrapolated using a multiple on earnings from what you project for net income or EBITDA over time.

If you are in the planning stage for talking with VC's - based on a lot of experience, here are the 5 most important things they are going to look for in your business plan and to discuss with you and your team:

1) That The Company Has Focus

2) That The Market Has Potential

3) That The Company Has Specific Solutions For Their Market

4) That Customer's Show A Readiness & Willingness To Buy From The Company

5) That The Company's Dynamics Are Strong

So make sure that you address them well in your plan and in your discussions.

Also, on this site, in the "Shop Talk" forum you'll find my post on "How To Write A Business Plan That Really Gets Noticed". If you get a chance you might want to read it since it continues on about the 5 important things investors want to know about your business and how to use that as a guide to create your plan.

I hope the above helps you. If you have any questions feel free to post them here or contact me directly. Good luck with your business plans.

Dennis Lowery

Adducent, Inc.