Investing and Valuation
This is where investors and entrepreneurs collide and great opportunities are lost because the two sides are not seeing the value. First the entrepreneur feel that his or her idea is worth millions because it is a great idea, even though it few assets, minimal to no revenue and/or capital. Lots of time invested maybe, but it is very hard to truly value the enterprise. Second the investor wants to buy low and sell high and discounts the potential of a transaction trying to minimizing risk and maximize return.
Who is right?
I have been on both sides of this, there is no really easy answer and that is why so few transactions really make it to market prior to proof of concept. Yet entrepreneurs continually hope to find that investor who will get their vision and put their money in.
I have learned a number of lessons over the years and as an
investor you do not want to crush the entrepreneur’s zeal, aspirations and commitment on the other hand the entrepreneurs cannot expect the investor to take all the risk while limiting potential returns.
For a transaction to get off the starting line both parties must have an understanding of valuation, expectation and aspiration and the investor and the entrepreneurs need to be willing to compromise. Structure a deal that works for them both sides is a requirement that is very hard to achieve without communication. Both sides need to be willing to compromise and understand the other sides position to get a transaction done.