When does a small, privately held company require a business valuation?
Generally, you need a valuation done any time that you don’t have the expertise to determine your company’s value. But the reality is that people value their companies informally all the time. For instance, if you bring in $1 million in investment capital and give up 25% ownership to get it, you’ve intrinsically valued your company at $4 million. In reality, all you have is enough money to get through the next round of funding, which may determine if you’re going to be successful or not. Are there specific triggers for the valuation of a startup? A small startup might need a valuation when raising a new round of capital, or when it hires a new CEO, or because it got a big sponsor for its Web site, or is getting a bunch of new traffic to its site. That means the company’s value grows—and at the same time it’s typically creating a bunch of stock options. You specialize in early-stage valuations done for the purpose of granting employee stock options. Why is a valuation needed then? In 20
