Wed, 7 October 2020
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing. In setting the valuation for a startup, there are financial calculations, and then there are non-financial factors. I call the non-financial factors the “soft side of valuations”. These include the following: Current market conditions -- as the market heats, up certain sectors turn ‘hot’ and therefore command a higher valuation than the numbers indicate. Predictability - companies with recurring revenue streams and long-term contracts command a higher valuation because their revenue is much more predictable. Customer concentration -- startups with a broader list of customers will survive longer. If a customer accounts for over half of the business, then this should be reflected in the valuation. Pre-profitability -- for early-stage companies, those with profitability should command a higher valuation. Pre-revenue -- for even earlier-stage businesses without revenue, intellectual property and customer forecasts come into play. Start with the financial calculation and then refine the valuation from there based on these issues.
Direct download: EG_Sep_2020_Startup_Funding_Espresso_--_the_soft_side_of_valuations.mp3
Category:general -- posted at: 12:10pm CST |
Wed, 7 October 2020
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing. The terms sheet glossary contains over 125 terms that can be used. For every risk in the startup, there is a term to place in the terms sheet to mitigate that risk. If you feel the valuation is too high, you can add a liquidation preference. If you think the team needs oversight, you can add board seats and fill it with advisors who can help. For maintaining an investor’s position in the deal, there are anti-dilution clauses, right to participate, and right-of-first-refusal terms. For maintaining oversight over the operations, there are information right terms, board seats, and founder-vesting terms. For achieving an exit, there are drag-along rights, redemption rights, and registration rights. For the risks in the deal, engage the terms to mitigate those risks.
Direct download: EG_Sep_2020_Startup_Funding_Espresso_--_Using_Terms_Sheets_to_Mitigate_the_Risk.mp3
Category:general -- posted at: 7:00am CST |