investment, valuation, convertible-noteI’m about to raise a million dollar as convertible note from Investor A.
When raising next round most likely investor A would invest more money. But i’m afraid that investor A would under value my company in the next round.
How do i make sure, my company valued properly when raising money and not get fooled by investors?
Is there any 3rd party service, who can go through my company assets and IP and value my company properly?
It would be strongly advised to seek investment from additional people in the next round.
It’s a good signal to the current investor that others believe in what you’re doing making them even more likely to follow on.
The fact the initial investor would be willing to follow on would be a good indication to new investors that what you’ve done in the past kept your investor happy.
It also stops the case of your stake diluting every round and your investors stake raising considerably every round until they own most of the business by percentage.
It also stops the case where an investor is leading on valuation who also most likely has a discount from the note in the previous round.
So - to get a valuation in the next round you should seek out new investors who will lead the round and your current investor either takes pre-emption rights stopping them get diluted or adds even more to the pot
There is no precise way to value a company. If you hire 5 different people to value your company you will likely get 5 very different results.
The best way is to find more than one investor who is interested in your company and let them compete against each other for the opportunity to invest.
If you only have one offer, that it definitely will be low, because everyone wants to buy stuff at a bargain.
I’ll play devils advocate.
What is it exactly that makes you think the investor will ‘undervalue’ your business? In all honesty, your business is only worth what an investor thinks it is. Why do you think they won’t do it ‘properly’ as you say?
The majority of startups fail because the founders massively over value their business and are too proud to accept the reality.
As already mentioned; make sure you get multiple valuations. Make sure you can demonstrate real revenues against your cost base. Make sure you know exactly what your revenue per employee is, revenue per customer/sign up, annual projections. Knowing your financials inside out, will help you estimate the real value of your business and give you leverage when raising capital.
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