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    5 Replies Latest reply on Jun 3, 2008 6:09 PM by LUCKIEST

    Compnay Valuation - How do you do it for a start-up?

    startup Newbie

      Though this question seems like it has a simple answer, I have yet to receive a one.


      Here it goes.....If I was to accept a $50k investment from someone, for a 25% stake in my company, what's my company valuation based purely off of the investors 25% stake and my 75% stake?


      How do you put a value to a company to justify the ownership percentages?


      Any help and advice would be greatly appreciated.
        • Re: Compnay Valuation - How do you do it for a start-up?
          dublincpa Scout
          As part of a business plan, you would project income, expenses, cash flow etc. An investor would then discount the anticipated returns, like dividends or distributions and any anticipated buyout or liquidation proceeds using a rate of return appropriate for the time horizon and risk of the investment. There are definitely other models like a multiple of expected earnings in year X of the business. Other businesses like accounting and invesmtent practices are commonly valued on multiples of revenue.

          Another common valuation method is to look at what the investment might be worth to someone else in the future. If you are developing something innovative that you know you can't get far with, but are certain that someone will buy from you in the future because it has great value to them, that may be taken into account as well. This is obviously the riskiest type of model because it is intended to lose money for a period of time in anticipation of a jackpot like payout.

          I hope that this is somewhat helpful.
          • Re: Compnay Valuation - How do you do it for a start-up?
            ccurtin Newbie
            What you need is a Hypothetical Valuation. Typically it is the present value of your businesses future cash flows based on 3+ years of projected financials.

            As a M&A shop, we sometimes use it in tandem with an enterprise valuation. The Enterprise Valuation shows the businesses current value. The Hypothetical shows what it would be worth if future financial milestones are met. It is used with when a potential buyer/investor in a company is strategic in nature. This is versus a financial buyer who is paying some multiple of the historical cash flows.

            You can get one done for $4k+.
            • Re: Compnay Valuation - How do you do it for a start-up?
              Bridge Navigator

              Actually, it can depend on what you are using the valuation for. If it is for estate or tax planning purposes, there are specific valuation guidelines that must be met and it is usually not apporpriate to extrapolate a $50,000 "25%" stake in a company to say that the entire company must be worth $20,0000.

              Typically there is a discount for "minority" or non-controlling interest. Additionally, was this a "common stock" investment or preferred? Are they any payback provision or warrants ofr future shares?

              Your company's valuation may or may not equate to what someone was willing to invest. Was this an arms length transation? Was the investor a relative?


              Sorry, no easy answer.
              • Re: Compnay Valuation - How do you do it for a start-up?
                LUCKIEST Guide
                Company Valuation

                Simple question gets a simple answer

                $50K equals 25% -- somebody

                $50K equals 25%
                • 50K 25*
                • 50K 25 75% your stake*

                Maybe, look at prior answers, LUCKIEST