Your Idea Is Not Worth What You Think It Is
Identify your real value before approaching investors.
By Laurie Hileman
Value your idea too high, says Jeff Barry, a partner with Plymouth Ventures, a growth-stage venture capital firm, and you risk coming across to investors as green or inexperienced—or worse, an entrepreneur with unrealistic expectations.
Value it too low, and you risk giving up more of your company than necessary, again marking yourself as green or inexperienced. “It’s not about it being way out of market; it’s about what it says about that entrepreneur,” explains Barry.
The key? Be reasonable. “You don’t have to have the right valuation, but as long as it’s reasonable, people are not going to look at you poorly,” says Barry.
So, how do you narrow in on a just-right valuation, one that’s not too high and not too low?
“You have to be prepared,” says angel investor Paul B. Murray, CPA/ABV, CFF, a founding member of Blue Water Angels and managing shareholder at Robert F. Murray & Company, CPAs.
“Know your market and know your product,” adds Murray. He notes a lot of research can be done on the Internet and suggests looking for local resources to narrow in on a valuation strategy.
Fear not. A less-than-perfect valuation is not always a deal killer. “If it’s a good company and product, with a strong founder/CEO, most investors will be okay with working toward a valuation together,” says Barry.