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The Venture Adventure

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Doing Your Own Valuation

Because evaluations can be very complex, your best bet is to hire your own expert before you conclude negotiations for venture capital. For example, you might be offered a great deal of money but be dismayed by the fact that the investors want 50% of your stock in return. You'll sit down at the table and carefully study all their facts, figures, and educated guesses and maybe it will all seem very impressive.

Return on Investment

Venture capital doesn't come cheap. Venture capitalists can demand as much as a 50% return of their investment compounded annually if they invest while you are still a startup. It could even be higher. The sooner you pay off your venture capitalist, the better it will be for you. Each year that goes by in which your venture capitalist hasn't yet exited (had his debt completely paid off) will result in making the investment money that your company received a lot more expensive!

But your own evaluator might chew over the same data and advise you that his conclusions are that giving the venture capitalists 10% of your company's stock is much more reasonable. This might be the single most important negotiation that your company ever enters into and you'll need the services of a good lawyer and an established pricing analyst or you'll run the serious risk of giving away too much of your company. Don't let all those millions of dollars that they are offering you put stars into your eyes!

Having more than one offer to evaluate might make your negotiations run a bit easier, of course.

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