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I know valuation is how much a business is worth. Is that right?
Also is valuation determine by assets/cash flow and how much management is getting compensate to run the company?
Cookiemonster can you suggest a good book on venture capital? More on the level of a VENTURE CAPITAL FOR BEGINNERS/DUMMIES concept?
There`s a great book but I don`t remember its title. I plan on going to the library tomorrow and I`ll find its title and pass it along.
1. Valuation metrics. There are numerous formulas. Valuation can include cash flow, assets, etc. Customer lists, existing contracts, all that stuff. Try googling valuation.
2. Valuation is the process of determining what anything is worth. How do you value a car? Kelly Blue Book for example. How do you value a house? Valuation is always a tricky matter in any transaction where price isn`t necessarily fixed.
3. Valuation is generally speculative, possibly art and science, not just science. I don`t know very much about valuation beyond the basics.
Questions:
If I put in my plan the minimum target number of clients and based on internet and other research of the average sale on beauty products and anything else I am selling, would that be a way to approach the financials? Also, if I am asking for $200,000 minimum and $500,000 and part of the plan is to give the VC firm a percentage of ownership (40%) and voting rights, as well as the right to make personnel and general recommendations, will that be enticing to them, even if my plan doesn`t have fancy graphics?
Venture capitalists are more or less concerned with three things. 1] The size of the market and your plan to get massive market share and huge revenue. Enormous liquid markets are best. New categories are even better. 2.] The management team. 3.] The exit. It`s the part where they make money.
This is what a venture capitalist wants to hear:
The market for this category of healthy and beauty products is $5 billion annually. Our product is patented and has already seen widespread acceptance in our local market. With additional capital we can achieve $1 billion in sales within five years. Once our market share reaches 20 percent, we will be an ideal acquisition target.
This is what a venture capitalist does not want to hear or find out:
The market for healthy and beauty is $50 billion annually. Our product faces entrenched competitors that have prevented us from gaining marketshare. With additional capital we can achieve $10 million in sales within five years. We can succeed if we only get 2% of the market.
Questions:
Also, if I am asking for $200,000 minimum and $500,000 and part of the plan is to give the VC firm a percentage of ownership (40%) and voting rights, as well as the right to make personnel and general recommendations, will that be enticing to them, even if my plan doesn`t have fancy graphics?
Katherine,
1. Your business may be a bit early stage for traditional VC firms - so you may have to look for alternatives.
2. I really hate to see you sell so much of the business for such a realtively small amount of capital.
Robert Johnson
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