Just as Vancouver real estate prices are adjusting, if you want to sell shares in your emerging company, you have to be realistic. With public markets down 15% to 25%, investors and entrepreneurs face a real challenge in reaching agreement on the value of an emerging technology company.
As the founder and Managing Director of the Angel Forum-Vancouver, I see 150 to 200 company profiles and presentations per year. A real deal stopper is where the valuation is way out of line – say $5 to $10 million for a pre-revenue company with no barrier to competition. All angel investors want to avoid a subsequent financing at a pre-money valuation lower than they invested at. They don’t want to see their 20% shareholding being diluted or “crammed down” to a 1% shareholding when new money is invested.
In the past, successful angel investors have said that $2 to $3 million was the maximum pre-money valuation that they would consider for start-ups. Values above this are for either quite advanced companies that are VC firm-ready or quite unrealistic. I would suggest that the average pre-revenue company will only attract investors today if its valuation is below $2 million. Keep this in mind if you are applying for the 24th Angel Forum on November 17th (application deadline is October 30th).
Investor Ready Workshop Special Offer: In partnership with Techvibes, we have a half-day free ticket to the all afternoon Valuation module of the Valuation and Equity Term Sheets workshop on October 27th. To enter, simply comment on this blog post with a 65-word investor pitch before October 15th. That is only a couple sentences, so you have no excuse not to enter. We’ll choose one winner to receive a half-day ticket including lunch, the full-day workbook and some great panelists – Paul Geyer, Basil Peters, Geoff Catherwood and Keith Spencer.