Last month, the folks at the Kaufmann Foundation launched a new collection on their eVenturing site on the topic of valuing early stage companies. This is a content rich site for entrepreneurs and a great source of inspiration, tips, and advice. This collection is a good primer on the terms and issues that entrepreneurs face in raising external capital. Additionally, this collection has some really good quotes on valuing a company and negotiating with investors. Some of my favorites are:
- " valuation is more art than science"
- "early-stage investment negotiations resemble a game of Texas Hold-’em poker"
- "valuations for pre-seed startups…are as level and consistent as a Tiger Woods round of golf"
- "educate before you negotiate"
In addition to being entertained, I actually learned some things. I was really impressed by the practical nature of the information and advice provided. For example, if you are struggling with determining a valuation for your seed stage company, the authors were unwavering: expect $1-3M on a pre-money basis. Do you place a value on your business that is significantly higher than what an investor sees? The authors recommend multiple strategies to bridge the gap.
Overall, the collection does a decent job of introducing this subject and the advice offered is consistent with our experience at ATDC. If you are looking to raise money, put this on your list of sites to review and let us know what you think.