A New ACEF Valuation Workshop for Angels and Entrepreneurs

December 4 2010 No Commented

In September, I mentioned I spent my summer developing a new ½-day workshop for the Angel Capital Education Foundation on establishing the pre-money valuation of pre-revenue startup companies.  This workshop has now been delivered several times to rave reviews from audiences of entrepreneurs and angel investors.  Let me tell you a little about it.

The workshop opens with a broad look at the returns seed/startup investors earn for funding new ventures.  The conclusions clearly show that investors in pre-revenue companies must invest only in companies with the potential to scale to a valuation of $10 million or more in 3-5 years to justify engagement.  Furthermore, returns are so skewed that early stage investors must utilize a portfolio approach to startup investing, that is, funding a minimum of 8 – 10 such companies (12-20 provide much improved odds of success).  Betting on only a few such investments is a recipe for failure.  This introduction closes with a survey of pre-money valuations of pre-revenue companies from more than a dozen North American angel groups.

The instructor then explains three valuation methodologies the participants:  the Venture Capital Method, the Scorecard Method and the Risk Factor Summation Method.  Templates are then used by participants to complete short exercises for each method.

In the final exercise, participants are assigned to small groups and determine a pre-money valuation for a case study company using all three methods.  At the conclusion, each group reports back to the entire audience, justifying their results.

Determining the pre-money valuation of startup companies is a particularly vexing problem for entrepreneurs and investors alike.  This workshop demystifies the process and provides participants templates for three valuation methods which can be applied to most future investment opportunities.

For information on licensing this workshop for delivery in your region, please contact Mr. Chris Major, ACEF Manager of Education at cmajor@angelcapitaleducation.org and (913) 894-4700.