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During a round of investment in seed- (start-up) and early stage companies, angel investors typically invest from $25,000 to $100,000 each. The round usually totals between $250,000 and $1 million, and the company valuations run from $1 million to $3 million. Collectively, the angels purchase from 20 to 40 percent of a company’s equity and seek a return of 20-30x over five years.
Since the Internet bubble burst, the pre-money valuations of seed-stage companies by venture capitalists have averaged between $1 million and $3 million. Angel investors tend to participate at earlier investment stages than VCs, so pre-money valuations for angel deals nearly always fall into this admittedly wide range. What factors within this range impact the valuation of a specific company?
The accompanying Valuation Worksheet provides entrepreneurs and investors with an empirical basis for deciding if a start-up company should be valued near the top or bottom of the range. It’s not designed to be used for definitive valuation calculations.
The Valuation Worksheet lists major factors and key issues to consider in judging the value of a seed (start-up) company. Note the following features:
Entrepreneurs can use the worksheet to gain insights into what investors are looking for in a fundable seed-stage company and to identify factors that justify higher pre-money valuations. The worksheet is also a roadmap on how entrepreneurs can improve the fundability of their enterprises and increase the pre-money valuation.
There are many ways to read financial statements. This information will add understanding to your own reading of your financial statements.
This article provides insight into fast growth company potential investors--venture capitalists.
This article provides several looks at simple depreciation, including one entrepreneur's example.
This article discusses the steps involved in the process of raising money from the first handshake to the cash-in-hand.
This article provides detailed explanations of terms proposed in investor term sheets and the effects of these terms on the entrepreneur.
This is a sample term sheet for a Series B round of financing.
This sample term sheet for a Series A round of financing details the major points of a hypothetical investment deal for a first-round ?Series A Convertible Preferred Stock? financing.
Raising money by selling equity to investors is a rare activity for companies, says CommonAngels' James Geshwiler. Not many CEOs get much practice or guidance on how to do this key task. This document is a sample template for entrepreneurs to use in pitching their companies to angel investors, and covers six main areas of risk and ability to generate return for investors.
Along with this sample Income Statement for a year old business, this tool provides a line-by-line explanation of the most common categories used to report profits.
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