LMKs method step 7 Investor valuation Selling shares to finance the company startup Now come a most critical question: Can we finance the company by selling shares without loosing control? It is often accepted that the GeneralManager should retain 2/3 of the company in the first round of financing. Will the company generate so much profit that 1/3 is enough to give enough return to the investor putting up the capital needed? Let’s have a look on our case

LMKs method step 7 Investor valuation Return for investor

LMKs method step 7 Investor valuation Many ways to look at a company In our case we see that the investor after year 4 has put something less than 3 mill into the company, including the missing 25% interest. In year5 (and we presume the following years) 1/3 of the profit (we disregard the tax here) will provide interest at 25% pa for more than 3 mill. So investor can get aprox 25% on his investment.( if plan is as solid as The Federal Reserve) Is this enough?? Investor may be looking for 10x input in 3 years !

LMKs method step 7 Investor valuation Value of our case We can calculate the value of this money stream, assuming the last year to continue indefinitely, or a fixed number of years, with a given rate of return Or we can calculate the value based on P/E=4 (25% pa profit) According to this the company is worth 10,7 mill which is far from the investors dream of 1,6x3x10=48 mill. Does the investor believe in the GeneralManager’s capabilities for building a profitable business?

LMKs method step 7 Investor valuation Completed plan: Change “Capital needed” to “Common stock” and “Additional paid in capital”, as well as fill in “Extra cash” This plan would be regarded as marginal. Too low sums for professional investors Not high enough growth potential Try again!