Determining a valuation for a pre-revenue company is a difficult process. A Harvard VC formula does not make sense at this stage as available P/E ratios essentially compare apples to oranges, cash flow projections are too untrustworthy to use a DCF method, and there is no such thing as a true market comp. Investors must rely on qualitative factors in connection to valuation formulas to determine how much they think the thing is worth. Some qualitative factors include:
2010 Angel Valuation Survey (Pre-money Valuation of Pre-revenue Companies)
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See Also:
Funding Law - How Much Does Your Business Need?
Changes to Accredited Investor Standards
Funding Innovation in Indiana
Funding Law - Investor Impatience
Random Thoughts on Private Equity
Funding Law - Know Your Numbers
Entrepreneurial Law - Developing a Good Business Model
Culture of Private Equity
A World of Private Equity
Rules of Funding
Entrepreneurial Law - Proof of Concept & Proof of Scale
Fatal Flaws in Leadership
Funding Law - Presentations to Investors
• Is the product proven in the market?
• How great can the product become based on market size and need?
• What is the competitive landscape and easy of entry into this market?
• How proven is the management team and what are their past successes in this market?
• What are the projected cash flows and expected return to investors?
• What is the company’s IP position?
• How great can the product become based on market size and need?
• What is the competitive landscape and easy of entry into this market?
• How proven is the management team and what are their past successes in this market?
• What are the projected cash flows and expected return to investors?
• What is the company’s IP position?
According to a recent survey of several angel investment groups represented at the 2010 Angel Capital Association Summit, pre-money valuations are on the decline. Bill Payne’s blog post does a nice job of summarizing the survey findings. Here is a summary:
2010 Angel Valuation Survey (Pre-money Valuation of Pre-revenue Companies)
Tech Coast Angels | $1.25MM |
Phenomenelle Angels | $1.30MM |
New York Angels | $1.30MM |
Frontier Angel Fund | $1.40MM |
DC Dinner Clubs | $1.50MM |
Vancouver Angel Network | $1.50MM |
Midwest Groups (Okabe) | $1.50MM |
RAIN Funds | $1.65MM |
Ohio TechAngels | $1.75MM |
Band of Angels | $1.75MM |
Life Science Angels | $2.00MM |
Alliance of Angels | $2.10MM |
CommonAngels | $2.70MM |
mean $1.67MM mode $1.50MM
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See Also:
Funding Law - How Much Does Your Business Need?
Changes to Accredited Investor Standards
Funding Innovation in Indiana
Funding Law - Investor Impatience
Random Thoughts on Private Equity
Funding Law - Know Your Numbers
Entrepreneurial Law - Developing a Good Business Model
Culture of Private Equity
A World of Private Equity
Rules of Funding
Entrepreneurial Law - Proof of Concept & Proof of Scale
Fatal Flaws in Leadership
Funding Law - Presentations to Investors
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