Ep. 183 – Seed Funding 101: Equity Valuation Example

SIBP-Blog-NEW-1For angel investors and small venture capital firms, investing is about hitting a very specific target. They want to invest a carefully weighed amount in a startup that has the potential for very high growth. They also want to know that when it’s time for them to take their money back out of the business, there will be plenty of interested buyers. If your startup doesn’t fit within that strike zone, odds are that these kinds of investors will politely pass on the opportunity to fund you.

In today’s episode, host and business coach Tom Ryan talks about the angel investor’s checklist, and the priorities from their side of the table. As always, Tom is joined by co-host and producer Jason Pyles.

• Show opening, and Jason’s Oscar and movie opening excitement

• Jason’s film podcast Movie Podcast Weekly (1:30)

• Real-life examples of seed funding (2:30)

6 Methods for Raising Money for Your Startup (and Their Tradeoffs) blog post (3:00)

• Agreement of value between investor and entreprenuer (4:00)

• The value of the deal for the entrepreneur (5:00)

• Red flags to watch for from passive investors (6:00)

• Understanding shared interest and the generation of money (8:30)

• A “typical angel investment” doesn’t really exist (9:30)

• Key variables that drive a valuation deal (10:00)

  • How much money is needed? (Or the “size of the raise.”)
  • How much equity is going to be exchanged?
  • What is the investor’s ROI expectation?
  • What’s the ROI timeline?

• Jason’s story about his aunt and uncle’s failed furnace-store startup (13:30)

• Successful high-growth concepts similar to Jason’s example (15:00)

• Mom-and-pop mattress stores versus the Casper.com model (17:00)

• Understanding the investor’s need for rapid growth in order to exit (18:00)

• More key variables in the valuation deal (19:00)

  • Who is going to buy this company during the exit?
  • What are the types of businesses they prefer to invest in?
  • What is the investor profile?

• Local example: Asheville Angels

• Back-of-the-envelope math for simple valuations (22:30)

• Understanding the clear pathway to exit (24:30)

• Institutional capital versus “I love you” money (25:30)

• Next episode: Qualities that investors look for

• Sign off, and how to contact the show

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