Evaluating start-up companies for investor pitches

Suggestions for how to value your start-up company when you are pitching to investors:

Pre-Revenue, Revenue of < $100K Annually:

• Company Value: $0
• Probability of Angel/VC Investment: Low to None
• Investment Required: Supported by a comprehensive work plan with milestones (probably more product based)
• Proof Required: The product/service is needed, and the management team has demonstrated ability to pull it off

Revenue > $100K Annually:

• Company Value: Based on previous sales, market segmentation and projected sales
• Probability of Angel/VC Investment: Medium to Low
• Investment Required: Supported by a comprehensive work plan with milestones (probably more sales & marketing based)
• Proof Required: The management team has the ability to ramp sales

Notice that the stories are slightly different. With little or no revenue, there’s no sense in spending lots of time talking about valuations and share value, because there really isn’t one. The emphasis is really on the management’s ability to take an idea and bring it to market. Once revenue starts to flow, the valuations start to make a lot more sense, and the entrepreneur has to prove how they can ramp revenues quickly based on investment.

Though these are broad suggestions, every company, based on their concept and management team, usually requires a sounding board for evaluating their companies.

Questions?  Please contact Rob Bennett, C4G's Executive in Residence.