Tuesday, October 28, 2008

Valuation Divergence

Attended the "Company Valuation and Term Sheet Workshop" organized by Bob Chaworth-Musters of Angel Forum yesterday.

I found that this workshop was probably the most useful of all the ones that I have attended before. Not kidding. I was impressed by other entrepreneurs in the room and how much everyone has gone through with their businesses. All of the entrepreneurs in the room were actively building their businesses and not just sitting on an idea.

I think the most obvious and interesting concept I picked up was valuation divergence between angel investors and entrepreneurs. How often have you told an investor that "You'll make 20X what you invest!" and they have told you "No I won't!"?

Often times it's because we entrepreneurs forget to factor in shares that are issued for non-capital purposes or neglect to include the $$$ we need to keep in working capital etc. to run the company. This may mean that we are valuating our businesses at a pre-money valuation that's too high (ok. please don't kill me fellow entrepreneurs.)

The workshop also went through a series of calculations that support this idea and it was interesting hearing about the first-hand experiences of angel investors that participated in the discussion panel.

I would recommend this workshop to other entrepreneurs who are looking at raising financing and hopefully Bob will organize another one soon!

No comments: