What’s Your Value?

What is valuation? “Valuation is what you are willing to exchange for something else that you want.” (Amis, D., & Stevenson, H). In other words, how much of your company are you willing to give up in order for an angel investor to be attracted to your venture?

First I would like to point out that I am a strong believer in shopping your business to the right investors. The right people will always see more value in your company than per say someone who just wants to make a return and does not scrutinize the details. Finding someone who is vested in your vision or idea always makes for a better outcome when looking for the perfect match.

As mentioned before, networking plays such a huge role when finding the right angel for you and your business.The bottom line is there is no way of really putting a realistic number on any start-up ventures simply because no one can predict the future. G2N is in the stages of building a serious financial plan  but it is still based on anticipated numbers. Until we have a year of operations and generate some sort of income with actual tangible numbers to discuss, all financial growth and value is just a prediction.

Through-out  our organically creating business journey,  I have stressed the most important selling point in this whole business venture, which is… YOU!  Yes there is a number that will show the value of a business, but the most value an investor will ponder over, is the Entrepreneur. If the angel investor and entrepreneur do not click, then it is almost assumed the deal with not move forward.

But its okay! There is an angel meant just for you!

A well thought out financial plan is always the first key to attracting a serious investor. It must show drive, self confidence but also make sense in regards to growth and productivity.  An angel investor wants to know how much your business is worth, how much is it predicted to grow and is the plan realistic?

Many people believe that most angels will only want to invest if the return is huge and/or they own a huge percentage in the company, which can be true. But, if you learn how to network and use your resources correctly, you can find the perfect fit for your business.

It is good to know the different approaches that angel investors take when putting value to your business. This will give you the ability to have the foresight that is needed to prepare yourself for a successful valuation.  Please note this again is a summary and each method should be researched thoroughly to gain a greater insight.  There are five approaches touched on in The 7 Fundamentals of Early Stage Investing which I will describe briefly:

Quick and Easy – this approach uses methods that resolve early challenges in investing and moves quickly in regards to the decision making process. It also includes the $5m limit method and Berkus method.

Academic/investor banker– this approach uses the multiplier method using the business plan times the industry standard and DCF (discounted cash flow) which can sometimes overvalue a company.

Professional venture capitalist – this method adds onto the multiplier and DCF methods  which help determine how much money needs to be invested for a good return.

Compensated advisor( this is true organic business growth) – this method is basically time for money. Your angel  guides you as a virtual CEO to provide support in the growing stages meaning he/she gets a percentage of the company based on the professional time she gives to your start-up. This is ideal for the investor and entrepreneur as it is low risk to everyone involved.

Value later – this is a newer method in which angels actually invest money without shares exchanging hands and no value set for the company. As crazy as this might sound, some investors find the decision to be a lot easier and they don’t have to worry about the valuation process.

These are some basic methods that most angel investors will use to determine the value of a business. Keep in mind angels want to feel good about the business they plan on investing in. Building a strong structure along with a plan of value will hope to encourage your angel to see that you are a winner, the deal is structured effectively and the price he/she pays is fair and will make a good return.

Going 2 Natural is in the throws of finalizing our business plan along with valuing our cooperative. It has not been an easy task, but one that will only enhance our endeavor and help to attract just the right investor for our business.

Amis, D., & Stevenson, H. (2001). Winning Angels: The 7 Fundamentals of Early Stage Investing. London: FT Press

Success is in the Evaluation

As I mentioned in my last post this is a perfect time for me to be reading Winning Angels: The 7 Fundamentals of Early Stage Investing which is giving Going 2 Natural the ability to gain insight to what attracts angel investors.

When trying to build your business on the basics, every piece of knowledge and insight really does help you save money and build a stronger business model. Research really plays a huge role in regards to helping attract the right kind of person to invest in your business.

As we venture into the second fundamental that attracts angel investors, one must be able to break down the core areas of their start-up to ensure their business passes the evaluating stage. Although evaluating happens constantly from an investors standpoint throughout the process of a business venture, it is important to know that this step in the process is considered very important and can be a game changer for your angel.

What is evaluating? To keep it simple, it’s a critical thought process that “sizes up the fundamental elements of an opportunity.” If an Entrepreneur knows what an investor is looking for, it will be easier to accomplish the four essential elements that are generally wanted when investing in a new business.

This method is called the Harvard Framework and it consists of people (your team), the business opportunity (your business model, plan, customers, etc), context (technology, your competition, supply and demand) and the deal  (the pricing and structure.)

G2N is going through this exact process currently so it will be a great opportunity for me to be able to break down a quick overview on how we plan on using the basics and the resources we already have to start this process. Now please keep in mind that this is just an overview and each section should be researched thoroughly to optimize your results in creating four strong elements of your own personal business framework.

People

Everyone has been made for some particular work, and the desire for that work has been put in every heart – Rumi.

The first and most important thing when building a strong and loyal team, is you! Remember to be honest, loyal, driven, and focused. When an Entrepreneur has these qualities and demonstrates them on a daily basis,  there is no stopping them. Remember your team is only as good as you as you are. So self growth (personal and professionally speaking), is important. You must truly believe you are capable of the job, if you expect anyone else to believe the same.

The next key is making sure the people on your team have a passion for what they do. If there is no passion, there will be no drive. This goes back to sourcing. Reaching out to different professionals in a variety of capacities can only help to enhance your search for like minded people who have the same vision and goal as you. The management team is key to the success of your business, so choose wisely and conduct research, ask questions, and I always suggest a trial period to make sure they mesh well with your existing team.

Business Opportunity

No serious investor will ever take a chance on a new business without a solid plan. Creating a strong business model is not an easy task and can even seem daunting to an experienced entrepreneur. Google is a perfect way to get started if you have never created a business model or plan. You can even look up different models depending on the field you are in, using your favorite model as a template to create your own masterpiece. I suggest again that you research each section of a few business models in your industry in order to create a strong plan that really makes sense and shows profit growth.

Context

It is very important to show your angel that your service or product is trending in the economy. Is it needed or wanted? Once again, research is the key to analyzing the actual demand of what your business is offering. If there is no demand, then it is time to rethink your vision.

Furthermore, it is important that you have the technology in order to grow and also make sure all the regulations are in order to run your business efficiently and successfully. Last but not least, how do you plan on being competitive in your market? This question must be answered with a skillfully designed plan in order to shine above the rest and peak a real interest from your angel investor.

The Deal

Of course, “the deal”  is a very important part to to the financial aspects of your business. This will determine how much of your business you are willing to let go. This can be tricky as you want to make sure to offer enough to attract a sizable return for your investor, but you also want to be sure you still maintain the essence and spirit of your vision and business. I suggest if you do not have a strong financial background, now is the time to use your resources to recruit some help. There are many resources when doing this. For instance, universities will sometimes have programs where you are able to contract a student on  a stipend or as an intern for a semester for a small fee and/or class credits. It is a win-win situation for both sides. This is just one way you can find financial advice for little to no cost.

So as you see this is definitely a very time consuming process but if done correctly, it will contribute greatly to getting the attention and confidence needed to attract the perfect angel for your start-up business.

*Note: In order to be able to qualify to work with students, the business must be established with the Federal Government (EIN number, etc.)

Amis, D., & Stevenson, H. (2001). Winning Angels: The 7 Fundamentals of Early Stage Investing. London: FT Press