Additional Funding for a Start-up Company

gapinggaping subscriber Posts: 2
edited October 2008 in Startup Funding
I need additional funding for my start-up `sports management` company (6 months in operations).  One option I am looking at is to sell some shares to some venture capitalist (or angel investors / silent partners).  I would like to know how do I go about it:


   1. how do I value my company (less than a year of operation)?
   2. how do I value the contribution of the new investor?
 
Hopefully, I`ll just give up a maximum of 10% share of the company.
 
Would inviting investors (who would take share of the company) better than other options?  What are the other options if ever?
 
Would appreciate guidance from experts out there.  Thanks in advance.

Comments

  • robertjrobertj Tampa Bay, Floridasubscriber Posts: 0 Member
    I don`t know about raising capital the Philippines, so my comments are based upon my experience in the US arena.
     
    1. When dealing with VC firms or professional angels - the ultimate Valuation is established via "mutual agreement" between the parties. It`s good to have some idea on the possible valuation before beginning. There are several methods - one being discounted cash flow.
     
    2. It is unlikely that either of the groups (VC firms or professional angels) will engage for only 10% of a company that is 6 months old.
     
    3. The first step in determining how & where to acquire the capital - you need to establish how much you need and how it will be used.
  • gapinggaping subscriber Posts: 2
    Thanks Robert.  These are practical inputs.  Just to clarify:
     
    1. In valuing using Discounted Cash Flow, could you give an example?  Is it based on Gross Profit or Gross Sales? Is this the most practical approach in valuing a business?
     
    2.  What is the usual practice there in the US with regards to giving up shares in exchange for additional funding?
     
    3.  I have all these items in placed (projected monthly operational expenses and some additional investments to expand the business)
     
    Hope to hear from you again.  Thanks in advance. 
     
     
  • robertjrobertj Tampa Bay, Floridasubscriber Posts: 0 Member
    Gap,
     
    1. It`s based upon the cash flow the business generates. You`ll need a projected income statement.
     
    2. I`m not sure what you mean by "usual" practice. In the case of VC firms, they usually received some type of preferred stock.
     
    3. See item one - I`d suggest developing a short form income statement based upon receiving the capital by a certain point.
  • gapinggaping subscriber Posts: 2
    Thanks so much Robert. 
    I already have my projected income statement.  In fact, just to share with you my projected year-on-year income (in $) on a 5 year horizon are the following:
    Year 1: $     7,695
    Year 2:    106,674
    Year 3:    216,448
    Year 4:    419,458
    Year 5:    618,789
     
    What I need for my additional funding is around $ 53,000.  Would you think that a 10% share of a company is fair enough?  With that, the investor shall ROI in 3-4 years and more than double his investment in 5 years.  Would that be a good deal?  For me and for my potential investor?
  • robertjrobertj Tampa Bay, Floridasubscriber Posts: 0 Member
    Gap,
    People who invest in early stage companies beleive they are taking a substantial risk and therefore expect a substantial return. The professional investor world looks for a double digit multiple in the 5-7 year horizon.  Double the investment in 5 years (assuming no interim payouts) is only 15% per year.
     
     
  • gapinggaping subscriber Posts: 2
    meaning the 10% share of the company is not enough for the $53,000 that the potential investor is putting in?  Wouldn`t be the 15% per year be attractive enough?
  • robertjrobertj Tampa Bay, Floridasubscriber Posts: 0 Member
    Gap,
     
    My comment was intended to convey the idea that 15% per year may not be an enticement.
     
    I think before you choose your "Capital Strategy", you may want to consider several options.
     
    Send me a PM with an email address if you want to delver further into the specifics of your situation.
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