Valuing your Company amid Financial Crisis

Just as Vancouver real estate prices are adjusting, if you want to sell shares in your emerging company, you have to be realistic. With public markets down 15% to 25%, investors and entrepreneurs face a real challenge in reaching agreement on the value of an emerging technology company.

As the founder and Managing Director of the Angel Forum-Vancouver, I see 150 to 200 company profiles and presentations per year. A real deal stopper is where the valuation is way out of line – say $5 to $10 million for a pre-revenue company with no barrier to competition. All angel investors want to avoid a subsequent financing at a pre-money valuation lower than they invested at. They don’t want to see their 20% shareholding being diluted or “crammed down” to a 1% shareholding when new money is invested.

In the past, successful angel investors have said that $2 to $3 million was the maximum pre-money valuation that they would consider for start-ups. Values above this are for either quite advanced companies that are VC firm-ready or quite unrealistic. I would suggest that the average pre-revenue company will only attract investors today if its valuation is below $2 million. Keep this in mind if you are applying for the 24th Angel Forum on November 17th (application deadline is October 30th).

Investor Ready Workshop Special Offer: In partnership with Techvibes, we have a half-day free ticket to the all afternoon Valuation module of the Valuation and Equity Term Sheets workshop on October 27th. To enter, simply comment on this blog post with a 65-word investor pitch before October 15th. That is only a couple sentences, so you have no excuse not to enter. We’ll choose one winner to receive a half-day ticket including lunch, the full-day workbook and some great panelists – Paul Geyer, Basil Peters, Geoff Catherwood and Keith Spencer.