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Numerous factors affect how angels value a company. Primary are the strength of the management team and the size of the opportunity, or a company's potential to scale. Accompanying this article is a valuation worksheet that entrepreneurs can use to better understand what investors look for and to identify factors that can justify higher pre-money valuations. Investors will find it useful to compare companies and determine whether valuation should be higher or lower.
Investing in seed and startup companies is extremely risky: Angel investors typically realize about 85 percent of their total portfolio returns from 15 percent of their portfolio companies. Consequently, angels look only for companies that can grow rapidly. Entrepreneurs who pursue less aggressive growth are unlikely to attract angel investors.
This informative piece explains a well-known method that venture capitalists use to determine "post-money valuation," which is a company's valuation at the time of investment. Perhaps more important, it provides valuable insights into why the returns expected by investors are often perceived as "too high" by entrepreneurs.
Valuation negotiations between entrepreneurs and investors are often contentious. Such valuations rarely stray from the $1 million to $3 million range for seed/startup companies that angels expect to grow to $50 million to $100 million over five to eight years. Angels are most concerned about the management team's ability to rapidly grow the company and about helping the entrepreneur achieve these growth objectives.
Understanding your break-even point can help you establish a range of profitable prices and give you insight into how much you must sell to meet costs.
Bootstrapping is a tactic to help you spend less cash and therefore need less to operate your business. This article discusses ways to bootstrap your business operations.
As you read this article, consider the critical preparation necessary to approach bankers and investors with your business proposal.
This article will provide you with a starting point for understanding your financial statements. In it you will find guidelines for the type of information you need and suggestions on how to review it.
This article discusses the advantages and disadvantages of obtaining needed cash through alternative sources that may not be typically considered. It also discusses specific sources that may provide the cash needed.
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