Editor’s note: Devon Scott provides an in-depth report about the insight, advice and knowledge shared at the recent Network for Entrepreneurs in Wilmington event.
WILMINGTON, N.C. – A recent Networking for Entrepreneurs in Wilmington (NEW) event featured four roundtable speakers who each offered tips for bringing a startup from seed to exit. The four speakers were David Jones of Bull City Venture Partners, Doug Ellis of M&A advisory Decision Point International, Sean O’Leary, former CEO of the recently acquired StrikeIron and the interim director of NC IDEA, and Peter Meath of the venture bank Square 1 Bank. Each speaker’s particular role in the business-building process offered a unique and valuable perspective.
The event was titled VIP4 and covered a total of nine topics each beginning with the letters V, I and P (the four signifies the four speakers).
The Vs: Valuation, Venture Banking, and Validation of Market Need
Tech investor David Jones took on valuation, explaining that the process of valuing a business occurs at three main points: when raising funding, offering options and upon exit. While he emphasizes that many aspects of the valuation process are “more art than it is science,” he makes it clear that there are techniques to the process.
There are certain qualities of a business that can be evaluated for the sake of valuation. For instance, David mentions that the entity’s cash flow is a good, real world indicator of traction. Its comparables— qualities or aspects that compare to a similar and already valuated entity—also plays a part. How does your business compare to another in the same industry or to a company that provides the same service? …
The valuation becomes highly important when considering dilution, particularly to the owners and founders of a business. On average, about 15-25% of a business is sold during each round of funding or investment. This becomes more important to consider when calculating your business’s option pool, which itself will be about 15-25% of your business.
David warns prospective entrepreneurs not to get too tied up in the valuation process, however. There are many techniques one could apply to attain high seed valuations above $3 or 5 million, but a high valuation is not the goal. “The financing is not the win…The win is when you exit the business,” he said.
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