View Full Version : Why does business valuation seem to be mostly ignored by investors in equity CF?

08-17-2013, 05:27 AM
Why do Business Angels like the ones in Dragons Den (http://www.bbc.co.uk/programmes/b006vq92) negotiate the valuation down to a level they are happy investing at? Because it makes the whole difference when it comes to financial returns.

However valuation is hardly ever an issue to the crowd investing. If you are investing for personal reasons, that is fine. But if you are investing for financial returns as most of us, you really should consider walking away from a deal that you like that is at the wrong valuation.

The difference in results can be staggering - see here why valuation matters for Dragons Den and Business Angels in equity crowdfunding investment (http://www.syndicateroom.com/blog/9-reasons-why-you-have-to-invest-at-the-right-valuation-to-get-awesome-returns-and-then-the-10th-reason-that-makes-it-all-work.aspx).

Do you ever consider the valuation you might be investing at?

08-17-2013, 09:45 AM
I think one of the reasons is that the vast majority of investors are not completely educated to how things work. Many will think, "Hey, what a great product, I have to invest into that!" but don't even look to see what percentage of the company they get for there $2k investment. This will be one of the dangers of allowing non accredited investors to participate here. It will increase the pool of uneducated investors. Having said this, the same could be said for the penny stock markets as well, but the SEC doesn't limit those. I think on any platform, the valuation, or market cap of the company should be big and bold, to stress to the public how small a portion they are actually getting.

08-19-2013, 05:47 AM
most of the investors lack a bit trust on those stocks thats why they tend ignore their investment and manytime the lack of knowledge also leads to this situation

08-19-2013, 06:14 AM
On Dragons Den last night one of the Dragons actually offered the investment money for the equity being offered, which was 16%, which is actually quite low. Very unusual for Dragons not to ask for a higher equity, though in fact some made counter offers and required a bigger slice of the action.

08-20-2013, 02:45 AM
Very unusual indeed particularly when the Dragons are known for being a bit too greedy when negotiating with the entrepreneurs.

From our experience of dealing with Business Angels in the UK at http://www.syndicateroom.com/, Business Angels want a share of the business that gives them a good return but also do not want too much because if the entrepreneurs don't have enough of the business, soon they will lose their interest and Business Angels will lose their money as a result.