Company Valuations

[mayennaise]

Watching Dragons Den.... how do these people calculate the worth of their company based on the percentage they are offering the dragons ? ?

[ll_billym]

Obviously some of them don't, they just guess at how much money they need and then decide how much of their company they want to give away but from an investors point of view they are buying a share of a total value.

I think sometimes the Dragons aren't really fair though and just use this to beat up the contestants as the future value cannot be truly known, for instance the investment into Levi Roots got £50K for 40%. This company was valued at £30M - so a fair investment should have been 12 Million ha ha.

[Hypognosis]

@methyl,

I think mayennaise is asking how these people arrive at their valuation of their company, so as to know how much to ask for and how many percent equity to offer. (I would like to know about this myself!)

As I understand it, if they ask for too much of an investment they risk not being offered any kind of deal and have to "leave empty-handed". Over-valuing their business is where it all usually goes wrong.

What so often plays out, in recent series, is that the Dragons agree to meet the amount of cash requested but always ask for about double the percentage equity the visitors had in mind.