The Value of Your Business As It Relates to Angel Investors

One of the most important things to understand when you are potentially going to work with an angel investor is the value of your business. If you are already in operation, then determining the value of your business is a much easier process due to the fact that a professional appraiser can come in and review your financial documentation. Once an appraisal is complete then a potential funding source can easily understand the value that they are purchasing when they make an investment into your company. If you have not yet started your operations then determining the value of your business is a complicated process. This is primarily due to the fact that all of your financial statements, which should be in your business plan, are going to be forward looking. As such, a potential angel investor is going to need to determine whether or not the financial results that you are predicting for your new business is accurate and reliable.

If you are not yet in operation, and you need to determine the value of your planned business venture, then we strongly recommend that you work with a certified public accountant that can attest to the forward looking financial model that will be in your business plan and other documentation that you will be providing to an angel investor. The attestation of your certified public accountant will assist with assuring a potential third party funding source that your business has the capability to earn the profits and generate the cash flows that are outlined with your financial model. On a side note, your CPA can always work closely with you and an angel investor to assist you in determining the best deal possible as it relates to having an equity injection placed with your business.

As an alternative to this method, you can always hire a private placement brokerage firm that can greatly assist you in producing the necessary documentation while concurrently introducing you to potential outside funding sources. However, this process in conjunction with the use of a private placement firm is extremely expensive. Additionally, you will need to pay extremely high fees as it relates to having business documentation produced and certified. In many instances, a private placement brokerage firm will also charge a fee equal to 8% to 10% of the total amount of capital that they raise on your behalf.

As such, it is extremely important to determine the value and equity of your business before you approach any type of outside private funding source. You may be very surprised to find that the value of your business is much higher than expected, and as such, you may not be required to sell as much of your company as you thought to an angel investor.