Although there’s an unlimited number of ways to structure a deal, there are a limited number of acceptable ways to valuate a company. Wall Street valuates publicly traded companies’ common stock primarily based on “Price Earnings” or PE ratios. Then the company value is arrived at by multiplying the number of total outstanding shares by the price per share, less total liabilities (debt). It would seem impossible to use this method to valuate a privately held start-up or early stage company, since most are “pre-profit” or “pre-revenue,” but it’s not. One simply uses the same metrics with a few adjustments. Valuating start-up and early stage companies pre and post-investment starts with producing 5-year, pro forma financial projections with reasonable revenue and cost assumptions. Once one has arrived at a future value of the company, by multiplying the projected earnings per share based on a PE Ratio against the number outstanding common equity shares, less debt, one simply discounts to that future value (end of 5 years for instance) to the Net Present Value, “NPV.” The beauty of Financial Architect® is that this is done quickly, easily and accurately with the use of CapPro™ included in each program.
Want to know more? Download your complimentary copy of the abridge edition of “The Secrets of Wall Street – Raising Capital for Start-Up and Early Stage Companies”.