Investor Early-Stage Valuations

Early-stage valuation is both important and difficult for the investor. In many cases, the entrepreneur presenting the investment opportunity will not have credible value indication, making it difficult for you to establish how much ownership to require in exchange for the funds you invest.

The problem is that many venture and seed funds do not adequately address the issue of valuation either. They may make arbitrary guesses to value or worse yet, use something like the Venture Capital Method to establish value. This is bad. Arbitrary value guesses are just that—arbitrary. It is easy to either leave money on the table or demand too much, depending on the deal. Further, evidence suggests that the Venture Capital Method overvalues deals by 60% or more, at least 70% of the time. Such valuation errors can affect fund performance in a material way. Further, financial analysis is not a full-time job for many funds, yet many funds incur costs for a full staff just to perform this analysis. This means fewer dollars are available to manage the deals.

At Pellegrino & Associates, we’re different. We work in concert with you to identify the useful life of your idea and quantify, from the bottom up. From there, we build a comprehensive valuation model, complete with investor summary worksheets that describe your concept’s value proposition succinctly. Finally, we stress your valuation model with sophisticated simulation techniques. We show you the statistical distribution and probability for your investment’s value and its key value drivers.

Want to know how much cash you’ll need to provide, and when? We can tell you. Want to know the value of the exit event? We can tell you. Want to know the probability of an exit event at a particular price? We can tell you.

In addition, our team includes members who have been engineers and business owners. We’ve been through the early-stage and product life cycle ourselves, so we know how to efficiently get to the heart of a concept’s value. And we bring with us a tool set that helps us keep the costs manageable and less than a full-time equivalent, so your managing partners can monitor deals instead of struggling with spreadsheets.

Contact us to learn more about Investor Early-Stage Valuations.