David Kirk made a guest post on the Loughshore blog.
(Referring to the LinkedIn IPO) So if the margin of error of a private company going public is 100%, imagine what it’s like for a pre-revenue, startup?
In this past two weeks, I’ve had an investment conversation with four companies in Ireland and Northern Ireland. In every case the answer is the same … valuation is 100% negotiation! But, the key, as always, to successful negotiation is knowledge and preparation.
I had exactly this problem when trying to negotiate with a potential investor in StartVI. They wanted to value every company at $0 whereas I was valuing every company entered in the programme at a notional $100K. Because what’s on offer is a percentage of the company.
I understand that a actual (as opposed to notional) valuation of a company in its infancy is going to be zero – but I found it hard to communicate the sharing of risk as we attempted to turn companies with an actual value of $0 into companies with an actual value of $500K+
So, faced with this, looks like we’re going to have to walk – mostly because I’ve so far failed to communicate the value of half a dozen companies that don’t even exist yet.