Valuating a Business & How to Introduce Yourself to a Venture Capitalist

Valuating a Business

Over the past 3 to 4 years, venture capitalists have been very conservative with their investments. This is because they have had so many problems within their current portfolios that they cannot afford to take the same risks on new companies.

The method of valuation will also depend on your industry. In a traditional, or smokestack, industry there are typically many comparative examples. Here you can work from the earnings before interest, tax and depreciation (EBITDA) of similar companies and apply a ratio to your own business.

New products and technologies pose a valuation problem due to the lack of comparative companies. It is much more difficult to valuate these businesses.

How to Introduce Yourself to a Venture Capitalist

The first option is to approach venture capitalists yourself. This is a very time consuming process and you risk taking your mind and attention away from your business.

The best way to find a venture capitalist is through an intermediary. They know the important players on the street and what they are looking for and investing in. The venture capitalist relies on recommendations of the people they trust. If the intermediary has established friendly relationships with them, it will boost your chances of getting in.

Going after a venture capitalist without an intermediary is like going to court and trying to represent yourself instead of having a lawyer.

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