Blog Post

What’s your business worth? Part 3

  • Date: Friday 30th October 2009
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When you approach an investor looking for them to put money into your fledgling business you must have a good idea of how much you want the investor to put in.   I prefer to see it as how much you need the investor to put in to allow your business to grow to its next stage.  You should also have in your head how much equity in the company you are willing to give for that level of investment.  This gives your business a nominal value.  I say nominal because if your business has not yet made any profits, by the price/earnings ratio method of valuation it’s worth nothing.   Find out what your proposition should be by going through the same series of questions that investors will go through.  In other words, try to see it from their point of view.

Bring to the meeting answers to these questions:

Product or service:                

  • In what way does your product offer customers an improvement on what they have now, and what do you think they will pay extra for that improvement?
  • If your product is completely new, what new benefits will it bring to customers and what do you think they will pay for those benefits?
  • What have you done in the area of patents or intellectual property rights?  You may not have done much but at least make sure you know something about how to go about the process.


  • Who are the potential users of your product?
  • How many people fall into that category?  (Make sure it’s a lot; investors want scalability: remember the hockey stick)
  • What are the potential routes to market?  Think widely about this, consider international markets, franchising, licensing, using the Internet and so on.  Don’t just think that your first idea is the only way to go.


Sales and costs

·         What estimate can you give of the sales you will make in the next two years and the associated costs of producing the product or service? 

·         How will these numbers differ if the investor puts money into the business?  Make this estimate sensible not fanciful but make it as big as you dare; we’re not interested in small.

Value the business

Now you are in a position to value the business.  Start from how much you need the investor to put in and take into account the profits you forecast. Come to a conclusion, once again sensible rather than fanciful, but go high, make it stretching.  After all it’s going to be hard work so it’s got to be worth the bother.  If you want a rule of thumb make sure the investor will double their money in at the most two years.



Tip from Shaf – Evidence, evidence and more evidence

Prove your assumptions in as many places as possible.  A product endorsement from a potential big customer can be worth a lot.  A contract, or even a Letter of Intent is better than a sales figure plucked out of the air.  Some documentation from the Patents Office shows your seriousness and so on.  Think of every assertion you are going to make and ask yourself how you can prove it or show that you have thought that through. If you haven’t got evidence ask for a postponement and work on it.



After you’ve done numbers the rest is up to you: how well do you sell the opportunity.  Any investor, like the Dragons, will value the company by valuing you.

That’s what we’ll look at in the fourth blog in this series. How do you sell yourself to an investor?

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