Considering Valuation
Valuation. Your valuation must fit within our risk/reward expectations for the investment. Typically, we look for pre-money valuations from $250k - $2 million. It takes unusual situations (e.g., a company with existing revenues, issued patents and demonstrated growth) for us to consider pre-money valuations greater than $2 million.
Full-dilution. In determining valuation, we take into account the effect of all commitments to issue shares (deemed fully-diluted shares). This number of shares includes those that you would issue if all unconditional and contingent commitments were to be given effect (e.g., exercise of options and warrants, conversion of preferred shares, exchange of debt for equity, etc.). Moreover, we expect a reasonable number of shares to be reserved (and counted as part of full-dilution) for consideration of key consultative / management slots and for other employee stock options.
Pre-money valuation. The pre-money valuation, simply put, is the value placed on your company before obtaining the capital sought after. Example: Multiply the fully-diluted shares immediately prior to the proposed financing (e.g., 2 million fully-diluted shares) by the price / share of the proposed financing (e.g., $1 / share) to yield a pre-money valuation of $2 million. If you add a proposed financing amount (e.g., $500K) to the pre-money, then the post-money valuation would be $2.5 million.
Pre-money valuation based on percent of company. Some entrepreneurs commonly think in terms of offering a percentage (e.g., 20%) of their company in exchange for an investment (e.g., $500K). Numerically, divide the proposed financing ($500K) by the offered percentage (20%) to get the post-money valuation ($2.5 million). Subtract the $500K from the post-money of $2.5 million to assess the pre-money valuation of $2 million. Note: These are just two different ways to compute the valuation; and hence, as expected, yield identical results.
Investment value vs. company valuation. It is important to keep in mind that early stage investors will likely have their equity interest in your company diluted (reduced) by later investors. For example, if angel group members invest $500,000 at a pre-money valuation of $1 million (and thus end up owning 33% of the company), and then a venture capital firm later invests $5 million at a $5 million pre-money valuation, the original angel group investors will own only half as much of the company, despite the company value increasing more than three-fold. As a result, because of the early stage at which we invest, angel investors generally receive 20-40% of the company’s fully diluted equity in exchange for their risk capital.
Valuation. Your valuation must fit within our risk/reward expectations for the investment. Typically, we look for pre-money valuations from $250k - $2 million. It takes unusual situations (e.g., a company with existing revenues, issued patents and demonstrated growth) for us to consider pre-money valuations greater than $2 million.
Full-dilution. In determining valuation, we take into account the effect of all commitments to issue shares (deemed fully-diluted shares). This number of shares includes those that you would issue if all unconditional and contingent commitments were to be given effect (e.g., exercise of options and warrants, conversion of preferred shares, exchange of debt for equity, etc.). Moreover, we expect a reasonable number of shares to be reserved (and counted as part of full-dilution) for consideration of key consultative / management slots and for other employee stock options.
Pre-money valuation. The pre-money valuation, simply put, is the value placed on your company before obtaining the capital sought after. Example: Multiply the fully-diluted shares immediately prior to the proposed financing (e.g., 2 million fully-diluted shares) by the price / share of the proposed financing (e.g., $1 / share) to yield a pre-money valuation of $2 million. If you add a proposed financing amount (e.g., $500K) to the pre-money, then the post-money valuation would be $2.5 million.
Pre-money valuation based on percent of company. Some entrepreneurs commonly think in terms of offering a percentage (e.g., 20%) of their company in exchange for an investment (e.g., $500K). Numerically, divide the proposed financing ($500K) by the offered percentage (20%) to get the post-money valuation ($2.5 million). Subtract the $500K from the post-money of $2.5 million to assess the pre-money valuation of $2 million. Note: These are just two different ways to compute the valuation; and hence, as expected, yield identical results.
Investment value vs. company valuation. It is important to keep in mind that early stage investors will likely have their equity interest in your company diluted (reduced) by later investors. For example, if angel group members invest $500,000 at a pre-money valuation of $1 million (and thus end up owning 33% of the company), and then a venture capital firm later invests $5 million at a $5 million pre-money valuation, the original angel group investors will own only half as much of the company, despite the company value increasing more than three-fold. As a result, because of the early stage at which we invest, angel investors generally receive 20-40% of the company’s fully diluted equity in exchange for their risk capital.
