Valuation How Much are you Paying for how much of the Company?
Unlike the public stock market, private company valuations are open to negotiation and often lead to disagreements between Angel and Entrepreneur. One way to avoid the argument is to use a convertible debenture.
Pre-Money vs Post-Money Explained If you invest $100,000 into a company with a Pre-Money Valuation of $100,000, then you will buy ½ of the company and own 50% of the Post-Money shares (now worth $200,000). If you invest $1M into a company worth $2M (Pre-Money), you will own 1/3 of the Post-Money shares worth $3M. This assumes the company is issuing new shares for investment purposes and you are not simply buying shares off of current investors without the funding going into the company itself.
When valuing pre-revenue companies, Angels use several different valuation methods that value human capital, intellectual property, key reference accounts and partnerships.
Factors that Can Contribute to Company Value: 1. Sound idea 2. Prototype
3. Quality Management 4. Strategic Relationship 5. Product Rollout or Sales
NACO Angel Academy Module 104: The Art of Valuation
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| Introduction to Angel Investing: How to Start
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