The titels of my blog may suggest that “Managing the Tech Startup” is a financing course. This is absolutely not the case but given my non-tech background I am starting with posts that somehow relate to my pre MBA working experience in financial services. At the end of this course you can expect tech savvy blogs;-)
Today we had Jorge Mata as a guest speaker in our class. Jorge is an investor in startup companies but above all a successful entrepreneur. He founded MyAlert, Berggi Inc, Zipclip Inc and Shiver Technologies. Through his own ventures and his experience as an angel investor he knows his “stuff” about raising capital.
He gave the class some very practical and helpful insights about raising capital. As an angel investor he looks for two important aspects: i) scalability of the business, and (ii) the management team.
The most valuable insights for me were the numbers he mentioned.
When you are looking for an investment from angels, the pre-money valuation of the business should be in the range of EUR 2 to 3 million. Pre-money valuation is the post-money valuation, e.g. the expected value of the business once the initial investment has been made. Subtracting the cost of the investment from the post-money valuation leaves you with the pre-money valuation. Go to Investopedia for a more detailed explanation of these concepts. According to Jorge, a pre-money valuation of EUR 2 to 3 million is required to have a successful future exit from the entrepreneur’s perspective. Depending on the amount of investment, around 30% of the equity can be given away in return for the angel investment.
In the next round, when a Venture Capitalist comes on board, a pre-money valuation of EUR 7 to (ideally) 12 million would be required. If the pre-money valuation is less it is likely that the entrepreneur has to give up too much of the equity and will be left with peanuts upon the future exit of the business. The entrepreneur should aim to give away 15 to 30% of the equity of the business in return for the VC’s investment.
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