Raising Money for Starting and Growing Businesses Chapter 10
Ways of raising money
Earning-capitalization valuation
Market-comparable valuation
Asset-based valuation
Earnings Capitalization Method:
Company value = Net Income/ Capitalization Rate
Present Value of Future Cash Flows:
PV = PV of the future free CF + the residual (terminal) value of the firm
Market-comparable Valuation (Multiple of earnings):
Total Equity Valuation = NI x P/E
Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©
Asset-based Valuation
External Financing
Finding business angels
Formal angel groups
Pros: Easy to find
Cons: May charge you for presentation or even business plan submission;
Few in number (several thousand)
2. Individual angels
Pros: Several hundred thousand
Cons: Hard to find and approach – the best way is through your network
Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©
Types of Business Angels
company
Top 6 factors according to VCs
Target
Market
Business
Plan
Management
Team
Product/
Service
Competitive
Positioning
Financial
Returns
7X return in 5 years
Competent written
business plan
Assessing a VC
Value added Patience
Deep pockets Accessibility
Harvesting (exiting) investments
Very Unlikely
Pros and Cons of an IPO
Upsides
Downsides
Financing
Advantages and disadvantages of an acquisition for the seller
Management
Founder
transaction, the