One of the most contentious areas that our Problem-Solvers become involved in, is discussions around company valuations.
We typically see a couple of scenarios:
1. Early-stage technology businesses where the owner is looking for X amount of working capital from an investor and then offers a minority stake. For instance, the entrepreneur will approach us saying: “I need R2m of working capital and I will give away 10% equity in my business” – this implies a valuation of R20m for a start-up which is often pre-revenue and will die without a capital injection. This valuation methodology is picked apart quite quickly by professional investors.
2. Older more established growth businesses where the focus is on investing further capital into the business and not necessarily on profitability. This makes it difficult to value the profits of the business, particularly as the Intellectual Property is growing.
3. A business has been approached by a potential suitor but feels out-gunned by the professional advisors that the suitor has brought. They are pressured with jargon and fancy valuation metrics – this is where a professional advisor is useful.
The Corporate Finance Institute have put together a great video looking at methodologies for valuing businesses which we thought was quite a useful explainer: