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Start-up Valuation

Time to get real

You have no revenue…

You have not figured out how to monetise and drive a profit…

You are on your own, have a co-founder or kinda know the team you want to bring on board…

You attend lots of start-up gigs and can do a decent pitch and Q&A…

Your part of an incubator/accelerator programme and you’re serious about building something big…

You know that you need a term sheet and have thought through all the bases to get there…

So, why does their head go all fuzzy when it comes to valuation?

Who is filling your head with nonsense…?

In general in the UK, angels, angel syndicates and high net worth serial investors are fair.  Remember, you are not the only deal they are looking at. You are probably part of a wider portfolio of investments that they have and will make. It is at this time that you need to be a realist. Remember, what you have is sweat and potential. This equals value and investors will put a price on that.  In the large majority of circumstances, this price is fair to you the entrepreneur, whom they need sufficiently motivated to run and grow the business.

I see a huge swathe of deals, term sheets and negotiations at Entrepreneurial Spark. From Brighton to Edinburgh, we have an investment bubbling away every month. This month, we have 5 deals. In essence they are angel deals. They range from £130,000 to £475,000 in cash offered for between, 10% – 25%. The entrepreneurs are being pragmatic in all these deals. And more importantly, so are the angels investors. In short, they are investing in a reasonable business model at a reasonable valuation with a decent and credible entrepreneur leading the charge. A lot of it is gut instinct, as proper due diligence at this stage is basic.

That is all it takes. Candid, free flowing discussions about the value they create now, how they will all grow the seeded venture to the next level and an appreciation of each other’s aspirations.

Yet, I still see some startups making crazy demands of angels, valuing their companies at Facebook prices. Why? Because they haven’t taken the time to sit and have a coffee or a dinner with investors. They haven’t gotten to know them or value them. They haven’t taken the time to see it as a real partnership that could last for 7 -10 years. Creating great deals takes time and effort and respect on all sides.

Go figure…

Read about about ‘Toxic Entrepreneurship’ in my latest column in The Scotsman – “Entrepreneur not a-bad word but it sets bad examples.”