Please take a moment to view my new video, Developing a Realistic and Defensible Valuation for a Start Up Company:
Hello, I’m Tardy Bryant with the Gathering of Angels. We have been in business for the last 20 years helping young companies raise money.
One of the basic tenets of raising seed and early-stage capital is the development of a realistic and defensible valuation. That means what the
company is worth today even though it may be pre-revenue. I use a formula
called discounted cash flow. I use a 40% internal rate of return and a market rate price-earnings ratio. I take the 3rd and 5th year net operating income after tax for year three and year five, multiply that times an industry multiple called a p/e, let’s just say fifteen, that gives me future value which I average and then to bring it back to present value, today’s value, I discount that about 40% internal rate of return.
This is the kind of return that seed and early-stage investors are looking for if they want a 40 to 50 percent return on its money per year.
So this is how I do valuations.This is spelled out in a lot more detail in my book called the Entrepreneur’s Guide to Raising Capital from Angel Investors.
Please contact me if you have any questions. My cell phone is (404)606-2013 and my email address is [email protected]
At recent Gathering of Angels meetings, we have noticed that there is renewed interest in our Angels writing checks to our GOA presenting companies. During the Great Recession of 2018-2012, capital fundings from Angel Investors slowed considerably but GOA meetings continued in Atlanta and Santa Fe. With my relocation to Atlanta area, GOA concentrated on filling the room in Atlanta GA and now that the Recession is officially over, we continue to have GOA meetings in Atlanta, Hilton Head and Big Canoe, just north of Atlanta. Check writing Angels attend our monthly meetings and after hearing the 20 min PowerPoint presentations and 2-5 min of Q&A, they then meet individually with our presenters and get to know them and develop confidence that their investment dollars will be wisely spent. Often Angels will want to meet entire team, review financials, discuss current valuation, and talk to existing customers. This process is called “Due Diligence” and is a critical and expected part of Angel Investing process before they pull the trigger and write you a check.
Often when Angels write a check to a GOA presenter, they go on the Advisory Board and assist the entrepreneur with not only capital but wise advice and counsel. The latter can often be as valuable as the check written. Most Angels have made it in the business world and bring volumes of good suggestions, advice and C-suite contacts and referrals for both channel partners, new investors and team members to round out your current staff. Angel Investors can really help you grow your business in a multitude of ways beyond their capital investment. A wise Entrepreneur will capture this opportunity to connect with these check writing Angels by presenting at one of our Gathering of Angels events.
The Gathering of Angels is now in its 20th year and has found capital for 386+ young companies from 20k to 39MM and has a 75MM funding pending for close in early December 2015. If you are looking for an Angel Investor to jump start your business, contact Tarby Bryant, CEO and founder of GOA at 706-579-1080 or [email protected] www.gatheringofangels.com
Often at the Gathering of Angels, a presenter will come fully equipped with his past several year’s financial records in excellent shape and QuickBooks prepared income statement and balance sheets. He will be knowledgeable and aware of his net profit and gross revenue for last 3 years and have professionally prepared projections for the next 1-3-5 years going forward. He will be aware of his gross and net margins on sales and have a clear and defensible valuation of his business using discounted cash flow as the valuation methodology. Any presenter with these financial documents in current form with proper security documents to receive an investment, will increase his chances of Angel funding by 75-90%. If the objective of a presentation to the Gathering of Angels is to raise seed and early stage capital, one would think that all requirements noted above would be in order and readily available to a potential investor.
But as you might suspect, it is often too rare case that all of the above is assembled and ready for the required due diligence before an Angel Investment. I have over the past 20 years seen funding after funding fall apart because the Entrepreneur was not prepared financially. Their presentation was all about marketing the product or service and the finance side gets cut short due to lack of preparation or being un-comfortable with the numbers or not having them at all. Any Angel Investor before he writes a check, will ask for historical financials and projections going forward. You as an Entrepreneur need to be prepared and armed for battle before you go on stage at GOA or any other finance forum.
Prior planning in the finance area is as important as a slick marketing niche, a strong team and passionate Advisors. Angels want the finance facts and want to know that you are prepared and accurate with projections. The use the later to determine the current valuation of your business and what equity stake they will offer for the capital you are seeking. Without proper historical and reasonable future projections of revenues, costs and net profit, no Angel Investor will step up and write you a check of any amount. All potential presenters at Gathering of Angels are coached to provide this and as prepared for finance questions from our Angels as marketing questions. Angels of today are highly focused on Exit Strategies and Liquidity events are the need to hear that you plan to not only return their capital invested in 2-4 years but return this capital with a high IRR (Internal Rate of Return). Investing in young seed and early staged companies is by nature high risk and demand a high rate of return inflation adjusted.
If the tools in your entrepreneurial tool box does not include a good understanding of finance and accounting, we suggest that you add a team member or finance consultant or CPA to assist you in full preparation before your presentation to an upcoming Gathering of Angels event. For more information, contact GOA Chairman and CEO Tarby Bryant 706-579-1080 or [email protected]
Practice makes perfect is the old phrase and this is relevant today before you present as in olden days. Any presenter who expects to just “wing it” will come up dry and not be successful. In the past, we have had presenters who refuse to practice and they go home with nothing to show for effort and after paying the GOA Presentation fee. We require that all presenters who come to GOA are practiced in the afternoon before the GOA evening event. On Shark Tank last night Nov 3, two very bright and well educated Doctors presented to the Sharks without proper practice and answers that they should have known the Sharks would ask. Mr. Wonderful (Kevin O’Riley) always wants to know what is the exit strategy for ME as an early investor. How do I make money as I am not Uncle George who keeps loaning you money with little or no hope of repayment. I suggest that our presenters split up their presentation into 1/3s with 1/3 for product or service, 1/3 for Management Team and Advisors and 1/3 for financials, capital sought, use of funds and EXIT for Investors. A strong 3-5 bullet point summary is the closing slide with High Passion.. This Rule of 1/3 is critical for getting checks written by most Angel Investors, all VCs and Investment Bankers.
Before a presenter come to Gathering of Angels He/She needs to practice their presentation alone or in front of close friends and advisors and get constructive critique and suggestions. Only after 1-2 days of practice are you ready for a chance at the brass ring, presenting to Gathering of Angels and seed money investment from Angel Investors Practice does make perfect and is mandatory if you expect to shake the money tree.
Since the great recession of 2008-2012 has officially ended, Angel Investors have again returned to the table and are writing checks to young companies looking for seed and early stage capital. The amounts are smaller than before the recession but with inordinately low interest rates at banks, money market funds and T-Bills, investors with cash are looking far and wide for better returns on their money. Investment in young companies is a very lucrative alternative but proceed with caution, there is risk where the higher returns occur.
An Angel investor who puts all of his capital in one venture and picks the wrong one, can quickly lose it all. Spreading the risk around over 2-5 companies is highly recommended only after full and detailed “Due Diligence”. Listening to presentations at our monthly Gathering of Angels is an excellent start and introductions to quality presenters is step one but several meetings and fact checking is required after the GOA presentations. Confirming customers and background checks on principals is part of the investment process for an Angel Investor before he/she pulls the trigger and writes a check to the Entrepreneur.
Angel investors come from all backgrounds and increasingly are female as now 12-15% of all Angels are female 84% of women investors are part of an Angel Forum like GOA or Club and make now 1-3 investments per year. Female investors are younger than their male fellow investors and are in the 45-55 age band. Our Angels at Gathering of Angels support these percentages and are most welcomed as active participants in our monthly meetings in Atlanta, Santa Fe and Hilton Head. We plan to open GOA meetings in Palm Beach and Big Canoe in 2016.
Microsoft Corporation was founded in Albuquerque when Bill Gates and Paul Allen came to the high desert of New Mexico to view the new computer called The Altair that would change the world. This computer had no operating system and Gates and Allen and a bunch of geeks wrote the code that became Doss and later morphed into Windows. Gates’ father urged him to protect the IP(Intellectual property) around Doss and to hire lawyers to do so. After the bill for $55,000 was submitted and could not be paid, the money to pay the legal bill was provided by Gates’ father who required that they leave New Mexico and return to Seattle area and grow their company there. Because NM sources could not provide the seed capital needed by Microsoft, we lost all the millionaires and spin off companies to Seattle.
The Gathering of Angels was founded in October 1996 as an economic development effort to stop this drain of talent from leaving the state and find capital for young companies like Microsoft that more often will relocate to where they get their seed capital.
The Gathering of Angels today has found seed and early stage capital for over 386+ young companies from 20k to 39MM and continues its monthly meetings in Atlanta, Hilton Head and Palm Beach.