Calculating a Company's Worth for Investors

Will Gaines
April 18, 2023
5 min read

When seeking investment, it's essential to know the value of your company. Valuing your business can be complex, but understanding its worth is vital for various reasons, such as raising funds, share options, selling the business, and conducting financial health checks. This comprehensive guide will help you navigate the valuation process, avoid common mistakes, and create a compelling pitch deck for investors.

Key Reasons to Value Your Company:

  1. Raising Capital: Potential investors need to understand the worth of the stake they're purchasing. Valuing your company accurately is critical for attracting investment.
  2. Share Options: Offering share option schemes can incentivize your team, but these benefits are taxed under the Employment Related Securities (ERS) regime. A robust valuation helps streamline this process.
  3. Selling Your Business: Knowing your company's worth is essential when negotiating with buyers, as purchasing an entire business differs from buying a percentage.
  4. Financial Health Checks: Periodic valuations help determine if your business model increases value and identify areas for improvement.

Getting Started with Your Company Valuation:

Valuing a company involves both science and art, blending various methods to arrive at an accurate figure. Four critical elements in valuing a company include:

  1. Asset and Share Price Valuation: Consider both tangible and intangible assets, such as leaseholds, furniture, machinery, and patents.
  2. Net Profit Value and Discounted Cash Flow (DCF): Focus on your company's present value, historic and projected cash flow, and profits. DCF is based on future projections and is especially relevant for newer businesses.
  3. Revenue and EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization): Assess earnings after stripping out taxes, interest, and other factors, then subtract overheads to determine revenue.
  4. Non-Financial Drivers: For startups with social impact missions, demonstrating how your company drives positive change can attract value-driven investors.

Additionally, use Relative Valuation to compare your business with similar companies in your market, especially listed companies or those who have recently fundraised.

Common Valuation Mistakes to Avoid:

  1. Unrealistic growth projections
  2. Failure to show profitability
  3. Missing costs
  4. Getting the unit economics wrong
  5. Not allowing for the impact of debt
  6. Incorrect discount/risk factor

Crafting Your Pitch Deck:

After applying valuation principles, researching benchmarks, and addressing potential pitfalls, create a compelling pitch deck that includes:

  1. Pre/Post Money Valuation: Clarify your startup's worth before and after investment.
  2. Drag and Tag/Share Subscription: Define shareholder rights and ensure minimal involvement in decision-making.
  3. Discounted Cash Flow (DCF): Reiterate the valuation method based on future cash flows and costs.
  4. Sensitivity Analysis: Prepare for various scenarios with base, target, and stretch plans.
  5. Net Present Value (NPV): Consider inflation when listing current and future values.
  6. Weighted Average Cost of Capital (WAAC): Compare expected ROI with similar businesses and ensure your offer is competitive.

Valuing a company takes time and diligence. Understanding your company's worth ensures both you and your investors make informed decisions and avoid being short-changed. Follow @acquire_fi on twitter and stay tuned for more updates on how to improve your business acumen.

About Acquire.Fi

Acquire.Fi is the first crypto M&A marketplace. Fractionalized ownership of Web3 companies, traditional businesses, and RWAs for all.

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Will Gaines
April 18, 2023
5 min read

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