Pre Money Valuation

[video_lightbox type=”url” style=”3″ auto_play=”Y” auto_buffer=”Y” url1=”” url2=”” width=”720″ height=”405″ placeholder=”http://transcapitalpro.com/wp-content/uploads/pre_money_valuation.gif” placeholder_width=”640″ placeholder_height=”360″ align=”center”]aHR0cHM6Ly8zMjB2aWRlb3MuczMuYW1hem9uYXdzLmNvbS9UQ1B2aWRlb3MvcHJlLW1vbmV5LXZhbHVhdGlvbi5tcDQ=[/video_lightbox]

I was talking with a friend of mine that sits on the board of an angel investor group. He told me that one of the first (and favorite) questions they like to ask presenters is what their “pre-money” valuation is.

Unless you’ve been down this road before, or have been coached, then you might be caught off-guard.

In this short video, which I filmed in my car, I give you the simple formula to calculate your pre-money valuation.

In a nutshell, you take the “Post-Money” valuation and subtract the amount of money you are raising.

Your Post-Money valuation is simply the amount of capital you are raising divided by the amount of equity you are offering.

So for example, if you are raising $500,000 and offering 33% of your company to do that, then:

  • Post-Money Valuation is $500,000 ÷ .33 = $1,515,000 (rounded)
  • Pre-Money Valuation then is $1,515,000 – $500,000 = $1,000,000 (rounded)

What Startup Mentors Say About Raising Money From Friends And Family

So you’re setting out to capitalize (both literally and figuratively) your new venture. Should you seek to raise money from friends and family?

A recent survey from Pepperdine University’s Graziadio School of Business shows that about 13% of small businesses sought capital from friends and family this year.

Here are three points from startup mentors to keep in mind when raising money from friends and family:

  1. ‘No’ is not a rejection – just because you think your idea is great, it may not resonate with everyone.
  2. Use your own cash as long as possible – get to the point where you can clearly articulate you offering, and if possible, achieve concept validation.
  3. A positive signal to other investors – having a “money vote” is good, but when its from family it sends a signal that you’re all in.
  4. Real financial risk – if things don’t work out, family gatherings can be a little stressful.

Read more in the WSJ

Image courtesy of Flickr and Evil Erin

5 Tips For A Successful Crowdfunding Project

There are many ways to fund a new business project. Traditional bank funding, business cash advances from sites like BusinessCashAdvance.com, venture capitalist funding, and private placements, have long been the mainstays of corporate finance. These can be very effective, but there is a modern alternative: crowdfunding. This allows you to gather the donations of a large amount of people to finance your project. The donations can be small, but since you are accessing many people, they can add up to large amounts.

If this sounds like the way charities work, you’re on the right track. There are significant differences between crowdfunding and soliciting charitable donations. Donors, despite the title, get something back in exchange for their money. The return doesn’t have to be monetary. Sites like Kickstarter allow people to set up projects where the payback can come in the form of something as simple as a download or something fairly elaborate. We offer tips on how you can plan, grow, and connect with your new crowdfunding project.

Read more

Six Steps To Raising Venture Capital – Its About Laying The Foundation

This article talks about laying the foundation to raising venture capital (I think there’s insight here for non-venture capital as well). The first three steps of laying the foundation include building a relationship with a person, not the firm; get personal, and give freely and authentically; and get a meaningful referral. Read more for the last three steps.

“One of the big misconceptions in baseball is that playing the game keeps you in shape to pitch. I wish that was true. It’s not.” Steven Ellis, Professional Pitcher Major League baseball pitchers spend far more time preparing to pitch than they actually do pitching. The same should be true of an entrepreneur who is […]
6 Steps To Raising Venture Capital — Hint: Preparation Matters More Than Your Pitch

www.forbes.com

Image via Flickr

Two Simple Steps For Staying Out Of Hot Water

Part of the process of structuring your private placement, or offering, is to target an IRR, or Internal Rate of Return.

But unless you’re constantly in the market, you’re probably just taking a shot in the dark. The solution of course is to talk to the market. Go out and have discussion with potential investors about what you are seeking to do and take note of the feedback you receive.

However, you need to be careful that your market intelligence gathering is not misconstrued as offering securities for sale.

The two things I’ve done to avoid this potential problem:

1. Add a watermark on each page of the Executive Summary that reads FOR DISCUSSION ONLY; and

2. Add disclaimer language to the Executive Summary that explicitly states that the document is not an offer to sell or solicit and offer to buy any securities. Also add language before the financial projections and the term sheet.

If you need disclaimer language, you can download it here:

Now go out and gather some market intelligence so you can structure your deal with confidence.

Calculating Pre-Money Valuation

[video_lightbox type=”url” style=”3″ auto_play=”Y” auto_buffer=”Y” url1=”” url2=”” width=”720″ height=”405″ placeholder=”http://transcapitalpro.com/wp-content/uploads/pre_money_valuation.gif” placeholder_width=”640″ placeholder_height=”360″ align=”center”]aHR0cHM6Ly8zMjB2aWRlb3MuczMuYW1hem9uYXdzLmNvbS9UQ1B2aWRlb3MvcHJlLW1vbmV5LXZhbHVhdGlvbi5tcDQ=[/video_lightbox]
I was talking with a friend of mine that sits on the board of an angel investor group. He told me that one of the first (and favorite) questions they like to ask presenters is what their “pre-money” valuation is.

Unless you’ve been down this road before, or have been coached, then you might be caught off-guard.

In this short video, which I filmed in my car, I give you the simple formula to calculate your pre-money valuation.

In a nutshell, you take the “Post-Money” valuation and subtract the amount of money you are raising.

Your Post-Money valuation is simply the amount of capital you are raising divided by the amount of equity you are offering.

So for example, if you are raising $500,000 and offering 33% of your company to do that, then:

  • Post-Money Valuation is $500,000 ÷ .33 = $1,515,000 (rounded)
  • Pre-Money Valuation then is $1,515,000 – $500,000 = $1,000,000 (rounded)

Raising Capital For Your Business

Whether your business is a start-up or a mature business, one of the most critical activities you’ll face is raising capital. One of the best, and often the most overlooked sources of capital are private investors. And while often times money is raised through friends and family, my view is to stick with accredited investors that are in the deal business each and every day. If you do tap friends and family for capital, make sure that the relationship  can handle a total loss scenario.

An intergal part of the capital raising process is your “prospectus,” which is different depending on where you go for your capital needs. If you are going to a bank, or a non-bank lender (such as an SBIC), you’ll want to have a crisp executive summary that provides the lender with information about your business and the use of funds. Some points that the executive summary should cover include a short history of the business, overview of the transaction (working capital, purchase new equipment, refinance existing debt, buyout of a partner), what products you sell, who your customers are (if applicable, think top ten customers and the last three years of sales for these customers), who your suppliers are (top five or ten suppliers and amounts purchased over the past three years), manufacturing process (as applicable), industry and competition (a SWOT analysis), sources and uses of funds, capital structured (pre and post financing), and summary of financial performance with applicable discussion and analysis.

If, on the other hand you are seeking to raise some type of junior capital, such as equity or subordinated debt, from private investors, you will need to have a private placement memorandum.

Think of the private placement memorandum as the executive summary on steroids. The private placement memorandum, or PPM, provides your prospective investors with the information that is needed to assess the trade-off between risk and return. You will need to articulate what the “deal” is; i.e. what type of security you are issuing, the terms, restrictions and covenants of the security. The PPM should also articulate the risks of the transaction, which includes risks inherent in the business, industry, potential conflicts of interest, risks specific to the security being issued, and corporate structure. The key to this risk section is to not sugar coat it and to not try to mitigate the risks in this section. Put yourself in the shoes of you prospective investor – what information would you wan to know?

Raising capital is not easy, but can be rewarding, aside from actually raising the money. Going through this process will require to think about and talk about your business in ways that you might not have had to in the past. And while you may think you have the best business or business idea (in the case of a start-up) in the world, when exposed to the the light of seeking capital, you will begin to see and think about your business in news ways.

Raising capital, particularly private capital, can take a long time. Depending on what type of relationships you have and how much initial work you do, expect to take six months or more to complete your offering. Even closing on a simple bank financing can take six to eight weeks from start to finish.

Raising capital can also be expensive. In the case of a traditional bank financing, your costs can often be rolled into your financing. Likewise with private placements, except for any placement fees you may pay, your costs can be paid or recouped out of the proceeds of your closing. The biggest risk, however, is the risk of bused deal expenses – your upfront expenses that get paid regardless of whether your transaction closes or not. As an example, your private placement memorandum can cost as much as $20,000 when prepared by an attorney, and bank financing expenses can include commitment fees, appraisal fees, and environmental assessment fees.

At the end of the day, raising capital is something that can be done. Like a lot of things in life, it takes know-how, persistence, and a little luck.

Raise Capital With Private Placement Memorandum

Use a Private Placement Memorandum Template from TransCapital Pro to raise capital for your business – whether its $100,000 or $10,000,000. You can raise capital for your business, private equity fund, or real estate transactions. Our templates are valid in all 50 states and are easy to navigate to  customize for your purpose.

Writing your own private placement is not as daunting an assignment as it sounds. A good template will guide you through all of the various sections. And, at the end of the day, you are essentially articulating your business plan to your prospective investors – and who knows your business better than you.

One of the critical sections of the private placement is the Risk Section. Here you will want to be totally transparent. I advise my clients that they should provide the information that they would want to know if the roles were reversed. You should never commit an intentional lie, or a lie of omission.

The other advice I give clients who choose to write their own private placement memorandum is to not sell. Just stick to the facts of the business and of the transaction. If you need a sale document, prepare a power point presentation.

Finally, make sure you get your attorney to review your PPM. Where I’ve found attorneys to add value is by tweaking the language in the Risk Section. I think its human nature to want to mitigate the risk your are stating (because you want to get your deal funded). But this goes against the grain of what the PPM is all about, and your attorney will take an objective view of this section and make sure its “just the facts.”

Private Placement Memorandum Templates for private equity and debt offerings from TransCapital Pro.

Private Placement Memorandums Help Companies Raise Captial

A Private Placement Memorandum is required of companies and hedge funds to help them raise capital. The private placement memorandum’s primary purpose is to disclose to the prospective investors all or the necessary information about the company and the transaction.  Years ago business owners were beholden to law firms for the drafting of a private placement memorandum. Today, the business owners have other sources to which they can go to for the drafting of a private placement memorandum.

Reg D is an exemption under securities law that allows for companies to raise capital from private investors; think of it like a private IPO. Companies can raise from $100,000 to $10 million of debt, equity, or preferred stock.

Information about your company, and the transaction at hand is all communicated through the private placement memorandum. This document helps prospective investors understand the nature of your business, as well as the risk involved. There are several web-based firms that provide Private Placement Memorandum Templates to help companies navigate the documentation process.

A reg d offering, or private placement can be run by a company of any size, from a start-up to a mature $100 million revenue business. These offerings can also be done by a C-Corp, S-Corp, or LLC (note that there are some restrictions for the classes of securities that an S-corp can issue).

Companies such as TransCapital Pro help business owners save money and hedge against busted deal costs by offering private placement memorandum templates for a fraction of the cost of an attorney-written document. If you choose to go the route of writing your own private placement memorandum o your own, it is a great idea to have your attorney review and comment on your document before you hit the street.

Private Placement Memorandum Templates for reg d private offerings, private equity funds and real estate funds.

Using Private Placements For Reg D Capital Raising

Private placements are a great alternative for businesses to raise capital. Permitted under Regulation D, also known as Reg D, companies can seek capital from individual investors. These individual investors will typically need to meet the accredited investor requirements of Reg D.

Private placements can be used to raise debt or equity, and can be used for any number of purposes. Businesses have used private placements to raise capital for growth initiatives, acquisitions, and new business ventures.

The challenge for businesses is the traditional initial cost to prepare a private placement memorandum. These costs are typically $20,000 and can run as high as $40,000. The concern many businesses have is that these costs are incurred before they even begin the actual process of pitching prospective investors. The good news is that with the right template, businesses can write their own private placement memorandum and then have their attorney review for significant upfront cost savings.

See all of our Private Placement Templates