Valuation in early stages
Young companies can only be valued to a limited extent using traditional methods, because reliable past earnings are lacking. The valuation in a financing round is therefore above all a negotiated outcome, based on planning, progress, team, market environment and comparable transactions.
We help you develop a well-founded view of the company's value and show which arguments support this view and where investors are likely to push back.
Pre-money and post-money
The pre-money valuation is the value of the company immediately before the financing round. The post-money valuation results from adding the newly contributed capital. The new investor's share corresponds to the ratio of their investment to the post-money valuation.
A simplified worked example: if a company is valued at 4 million euros before the round and an investor invests 1 million euros, the post-money valuation is 5 million euros. The investor then holds 20 per cent, and the existing shareholders together hold 80 per cent.
Understanding dilution
Dilution means the decrease in the percentage shareholding of existing shareholders when new shares are issued. Dilution is not inherently disadvantageous: a smaller share in a considerably more valuable company can be worth more than a large share in an underfunded one.
It is important to think ahead about developments over several rounds. Together with you, we draw up a cap table (overview of the shareholders and their shareholding percentages) and calculate how future rounds and, where applicable, an employee participation programme affect the shareholdings.
Shareholding structure and legal structuring
Apart from the valuation, further agreements determine the economic effect of an investment, such as co-determination and approval rights, provisions on the sale of shares or preferential rights in the event of a sale. These points are often first recorded in a term sheet (letter of intent setting out the key terms).
We explain the economic effects of such provisions. The legal drafting of the term sheet, investment agreement and shareholders' agreement as well as the required notarisations are undertaken by lawyers and notaries, whom we bring in or with whom we coordinate.
Frequently asked questions
Do you prepare a valuation report?
We develop a valuation view with a sound business rationale as a basis for your negotiation. Formal valuation reports, for example for tax purposes, belong in the hands of appropriately qualified professionals.
Is a high valuation always advantageous?
Not necessarily. An excessively high valuation can make later rounds more difficult if the expectations set are not met. What matters is a valuation that can be justified by your progress.
Do you review our investment agreement?
The legal review is carried out by a lawyer. We can explain and calculate the economic consequences of individual clauses.