Thursday, 24 September 2015
Is it any wonder valuations in ECf are nonsense
When you have articles like this in Forbes about the way to value start ups, it is hardly surprising that entrepreneurs are getting theirs so wrong.
Why would you want to waste money asking an accountant what a start up is worth? If you cant do the basic maths then you shouldnt be running anything.
There is far too much talk of exits, driven by the ECF platforms who need them to show ROI. 99% of start ups that make it through the first 3-5 years do not EXIT - they simply carry on making money for those who work there and own the company.
To value a start up, simply work out how much money you need for the stage your company is embarking on and estimate the minimum you can get away with offering in terms of equity. Remember if you fail to entice investors then this maybe the end of your business, so do not be greedy. Having 50% of something is worth a lot more than owning 100% of nothing.
We get reports that the ECF platforms have an aggressive approach to company valuations - the more value a company puts on itself, the more it can raise for a % of its equity and the more the platforms make. Investors are starting to finally wake up to this - look at the recent successes on Cowdcube and they are mostly pitches that have been forced to raise their offer or fail.