Get the best price for your equity - value your company correctly
By Venture Giants
How much Equity are you offering in exchange for Angel Investment?
Many entrepreneurs have an emotional attachment to their business or concept and tend to over valuate the business while at the same time refusing to give up any or very little control. So how much equity are you offering an Angel investor in exchange for his or her investment?
4: 50% +
If you are prepared to offer an Angel Investor 1- 20% equity in the form of common shares than this is part of your investment proposal that requires additional consideration. However if you had considered that in return for an Angel Investor’s investment, you are prepared to offer an investor 21-49% equity in the form of common shares than this is the ideal range for most Angel investors depending on the risks. 50%+ will always be an extremely attractive range for most Angel investors depending on the risks.
You should consider how you arrived at this percentage. There are a number of variables that help in determining the appropriate % to offer an Angel investor.
Answering each of these questions as honestly and completely as you can should give you a better sense of what is a reasonable amount.
How important is the funding to your company?
What percentage of the total company value does the Angel investors funding represent?
How has the company been valued?
What additional value does this Angel investor bring?
Many entrepreneurs have an emotional attachment to their business or concept and tend to over valuate the business while at the same time refusing to give up any or very little control.
If you are unwilling to give up any control or to even share control with an Angel investor, you are severely reducing your potential Angel investor pool. Most Angel investors' want to assume a role in the business ranging from active management to board membership, mentoring, leveraging contacts etc. Others may want a more passive role typically referred to as a "silent Partner".
It is very important to note two things:
1. Angel Investors typically invest in companies which fall within their area of industry expertise or significant experience.
2. Angel investors can be a valuable resource for the entrepreneur that extends well beyond just providing financing.
Angel Investors can lend their expertise through mentoring, coaching, monitoring performance, generating leads, opening doors etc. and they have a vested interest in your success. Don't be too quick to dismiss this since most Angel investors have experienced greater results when they have taken a more active role in the new company.
Even if an Angel investor is not interested in directly participating they may know of someone else who would be a valuable asset to the management team.
It's very important that the entrepreneur detach themselves from the emotional connection to the business and think in terms of what's best for the business. Try to look at the additional value that a potential Angel investor brings other than the obvious - financing.
How much is my company worth today?
What is the potential of the company?
How much do I give up to attract "smart" funding?
How much could it be worth?
A start-up is much more difficult to valuate and typically is based on the potential as outlined in the business plan. This takes into consideration such things as current market conditions, interest rate levels, how fast they will achieve the projected milestones, competition, management team etc.
So, what valuation process have you used and have you taken the above factors into consideration?
Venture Giants is a premier UK business Angel investment network and small to mid sized business networking portal that matches active business angel investors with entrepreneurs' seeking investment capital and business funding.
Written for and behalf of Venture Giants Enterprises Ltd. All rights reserved 2009
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