Questions

Term sheet is to be signed. In order to determine equity for my investors, what step-by-step approach for valuating the company would you recommend?

Should I valuate the company by myself or should I turn to an attorney? What attorney should I look for? Can you provide links to exemplary, reasonable Term Sheets, you've already signed?

3answers

The first question cannot be answered as asked. The starting point is agreement on how the investors are to get their money back.

Neither you nor your attorney should attempt to value the business. Who you turn to depends on the business itself.

There are norms available even for pre-revenue firms but usually not term sheets for specific transactions.


Answered 6 years ago

First of all - a 'reasonable' term or agreement is the one that is acceptable and interesting to both you and your investors. You are in it together!

In terms of valuation there are many formal and informal ways to do it. For a company with revenues 3x revenue is an acceptable rule of thumb. But this is just a starting point for discussion. You should also take into account all tangible and intangible assets and then discount for the risks that nothing will work out as planned....

As for the amount of equity to give away - it is not unusual if the first big investor takes 30-40% of an early company. The more advanced you are, the closer to revenue or to be profitable, the more expensive you are and less equity could be offered.

Sorry for the theoretical answer! But a generic one simply does not exist. I just tried to outlined things to be taken into account.


Answered 6 years ago

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