investment, investors, valuation, acquisitionStartup A has a few series A term sheets from investors with various amount (1M~1.5M) at 4M pre-valuation. One of the founders is inclined to take the investment and move forward, however the other founder whom is also the CEO who calls the shots wants to turn down the investments and try to sell the company at around 10M. Is this reasonable?
More generically, if investors values a startup at X pre-money, typically is the acquirer most likely going to acquire the startup at around X? More than X? Less than X?
Generally speaking, there are as many valuations of a company as there are people that look into its financials. There’s no right or wrong method to do it, and entire (contradictory) books have been written on the topic to confuse things further.
The sorry reality is closer to this: the only valuation that counts is the figure a buyer is willing to write on their checkbook before signing and handing the check to a seller. That’s a valuation: it’s when you know precisely how much a company is worth to a actual buyer who completes the transaction. Everything else is theoretical.
Anyway… Is it reasonable? Maybe; maybe not. The only thing that counts is: the CEO is not willing to sell at that price today. Perhaps they’re right, perhaps they’re not.
As Denis said the price depends a lot in what the investor or acquirer wants and can do with it and investors and adquirers want different things.
Typically an investor objetive is to gain money in high risk but high growing business. Usually this means selling the business in a big way short after.
An adquirer may want the technology, the users, the know how, the contacts,the culture, the supply chain or any other factor difficult to replicate. This factor may only be usefull for themselves. For example, whatsapp won’t probably produce money but it’s user base can be very usefull to cross-sell service and fidelize users. Facebook can obtain a lot of benefit that other companies won’t be able to obtain. Some companies wont even mind the product but will happily buy a company with a team experienced in a new technology that he needs to have. Other companies may just want to make the life of a competitor hard.
Of course an investor will evaluate any potential buyer with a higher value but will be forced to make a more general analysis.
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