Structuring The Private Placement Or Venture Investment- Pre-Deal Considerations
I recently blogged about how to determine valuation in a start-up or development stage entity for purposes of structuring a prepackaged private placement, or for negotiating the venture capital transaction. I followed that blog with one explaining the various types of financial instruments that can be used for an investment.
Before a company can package a private placement offering or effectively negotiate with a venture or angel investor, it has to have its proverbial house in order. This blog circles back to the beginning discussing pre-deal considerations.
In order to successfully attract quality investors, a company must have its financial and legal house in order. I always advise my clients to act as if they are public, even if they never intend to go public. What is meant by that is to maintain proper corporate books and records. Draft and sign minutes of meetings of the board of directors, officers or committees. Keep systems in place to make
Structuring The Private Placement Investment- Development Stage Or Start Up Company Valuation
As the economy has been gaining strength, so have the number of entrepreneurs seeking private equity investments through pre-packaged structured private placement offerings, and negotiated venture and angel capital sources. A question that arises almost daily in my practice is how to determine a valuation for a development stage or start-up venture. Determining a valuation is instrumental to answering the overriding questions of what percentage of a company is being sold and at what price.
For business entities with operating history, revenue, profit margins and the like, valuation is determined by mathematical calculations and established mathematically based matrixes. For a development stage or start-up venture, the necessary elements to complete a mathematical analysis simply do not exist.
In the case of a pre-packaged private placement offering for a development stage or start up venture, valuation is an arbitrary guess, a best estimate. In the case of a negotiated investment with a venture capital or angel