How do I value a Dollar in an Entrepreneurial Deal?
For a Professional Entrepreneur to use money is to turn a profit. Value is different depending on who you are talking to. Profit is found in the value of an Entrepreneur’s knowledge. If you want success at convincing people your deal is valuable determine your audience.
Most people focus on cash flow numbers. Some people will focus on revenue. Other people will focus on margins. Some people only care about profits. All three of these items are different.
Asset values are difficult to value. You must have a lot of charisma to talk about asset deals. You must have a knack for speaking to people. Asset values take skill to explain. Asset deals give people no money for a long time. Convincing someone to lock up money for extended periods of time has different dynamics.
Revenue is important if a business is trying to “grow”. Revenue is also important if the business intends to list on an exchange. Revenue centered deals are not concerned with profits. The purpose for high revenue is to raise substantial money. If you speak to a person concerned with revenue you must focus your presentation on how numbers go up. You must show people market share is increased with revenue. Profits are not important because hitting milestones increase share price. These deals need to be structured as corporations. Don’t believe me? Go look up 10 publicly traded companies whose share price grows by at least 25% a quarter. The fundamental of the stock’s appreciation will be dramatic increases in revenue (regardless of profitability).
Margins are meant for people who know how to do “transactions”. Transactions are deals where a person has a buyer. You have a product that is offered by a seller. In a margin deal one transaction is enough reason to do business. An example is “selling real estate”. Some relationships will form for years based on one transaction. You get $20,000 to do a deal. Your deal earns $80,000. You might have that relationship for 10 years. That’s an example of a margin deal. For these deals structures can be loose. You can have partnerships, joint ventures, or just formal contracts. All that matters is the “deal”. These are the perfect transactions to present that have no historical records. These are the deals I recommend for entrepreneurs.
Profits are important for investors. Investors are usually locked in for the long haul. The returns you offer investors are usually not great. These people are passive participants. These people want above market returns with verifiable information. Verifiable information includes a track record. Track records are 9 consecutive months of earnings in my book. These deals need to be companies at least 2 years old. If you want an investor you have to prove out a concept. If you get an investor involved in a start up you have a lot of liability. Investors are not good audiences for initial concepts. Generally these people do not have risk tolerance levels required to participate. These people will involve you in law suits if their expectations are not met. These people often make claims to damage your reputation. I do not recommend involving investors in transactions that have no track record. These people focus on tax returns and bank statements. When a deal with an 80% published likelihood of failure fails — the investor will not care what they signed. The investor will insist you “guaranteed” the deal. Worst the investor might even start complaining you took advantage of them. If you have no easy to understand evidence that contradicts them — you will face consequences (one way or another). Tread carefully with investors. Even if the person states they understand everything. These people cannot afford to lose their shirts. Do not take the shirt unless they want to work in the deal with you.
Focus on your audience to determine value. Everyone is concerned with something different. Know who you are talking to in order to determine value. Your opinion on an answer is not important. What is important is the person’s opinion on your answer.
Your job is to convince someone to give you their money or let you into their deal. Answer the question the other person is asking not the one you feel like answering. If you cannot accurately justify your value the person will not let you in. Focus on value first and close with value last. The Professional Entrepreneur understands how to value themselves and their opportunity.
About Christopher: Christopher Knight Lopez is a Professional Entrepreneur. Christopher has opened over 7 businesses in his 14-year career. Christopher’s purpose is to take advantage of various market-driven opportunities. Christopher is a certified Master Project Manager (MPM) and Accredited Financial Analyst (AFA). Christopher previously held his Series 65 securities license. Christopher also has his General Lines — Life, Accident, Health & HMO. Christopher has managed a combined 286mm USD in reported Assets Under Management & Assets Under Advisement. Christopher has work experience in 29 countries, raised over 50mm USD for various businesses, and grossed over 7.5mm in his personal career. Christopher worked in the highly technical industries of: biotechnology, finance, securities, manufacturing, real estate, and residential mortgages. Christopher is a United States Air Force Veteran. Christopher has a passion for family, competitive sports, fishing, martial arts and advocacy for entrepreneurs. Christopher provides self-help classes for up-and-coming entrepreneurs. Christopher’s passion to mentor comes from belief that entrepreneurs need guidance. The world is full of conflicting information about entrepreneur identity. See more at www.christopherklopez.com