I started a new company; I have significant industry experience, but
not much experience with finance and accounting. My friend works in an
investment bank has been helping me. He is very smart and I trust his advice.
He did some work me and concluded
that my company was worth $4m. I have less than $100k in revenue, but I have
good distribution for my products and I am the first to market. I was thrilled,
but when I mentioned the $4m valuation
to others, they were skeptical and warned me not to take it too seriously. But
I trusted and believed my friend. It also made me feel good because it told me
all my hard work was paying off.
I was ready for
investment, so I prepared my business plan and my first investment deck. I
prepared my financials and I used my friend’s Excel spreadsheet with the $4m valuation.
The first investor rejected me, calling the
valuation absurd. Another asked me to justify the valuation. I don’t know anything
about finance but I told the investor my friend who worked as an investment
banker prepared it. The investor
suggested I learn more about finance before I approach others. Four other
investors rejected me without any explanation.
I finally sent the deck to
some other friends and advisors- each said the same thing. The valuation could
not be justified. The real value was under
$500k. I was shocked. I did not know who to believe. If the valuation was that
low maybe I was not doing a good job. I own 80% of the company. One day I was
worth $3.2 million dollars, the next day $400k.