Valuation – Winning Angels

“In 1978, angel investor Richard Kramlich invested $22,500 of seed capital into Apple Computer at a pre-money valuation of around $10m.  The investment grew in value to over $5m, which was 222 times his investment” (Amis and Stevenson, p173).  A multiplier of 222 times his investment was quite some value.  Given a crystal ball at the time of investment certainly the evaluation of Apple would have been much higher and Kramlich’s return much lower.  However, there is no crystal ball, but angel investors are certainly making every effort to peek into what the future may hold so they can make an investment decision.  The Valuing section of Winning Angels; the 7 fundamentals of early stage investing reviews 12 varying methods that angels may use to value a company.  There seems to be more methods but these 12 certainly cover a vast difference of thought and strategies that a professional angel may go though. 

I was asked to invest and assist in the purchase of a daycare business once as a friend of mine who had some capital from a family member to purchase the business but was going to be a little short.  They were inexperienced in the financial side of the business and needed some more capital.  They certainly overestimated my business abilities, but I jumped at the opportunity.  We began the business plan, I met with the selling owner, reviewed the previous 5 years of tax returns and financials, and valued the business the best I could give using my layman’s ability considering the company’s assets, current market conditions to evaluate growth potential as well as intangibles such as the current leadership, associates, strategic placement of business compared to competitors, etc.  Our market is very underserved with this type of business and this company was already considered a market leader.  I was able to recognize the overall value of the company was a little limiting, but it would provide some annual ROI so I was excited.  I also recognized that as the conversations grew more serious, I would need to incorporate some more knowledgeable input so a visit to a lawyer and CPA was planned.  I am certain the still-current owner felt her market leading company had selling value and she could just re-open another one taking the current families and quite possibly some workers.  We were aware of that and  after our valuation, we were still well short of the current asking price and the deal fizzled out.   

As an example of how each of the 12 methods would result in a different valuation, the authors applied each of them to a real-life investment scenario of David Amis’s when he invested in an October 1999 angel round of a company called Interlate.  I found it very interesting the vast differences in the valuation that each method equated to.  The Multiplier method resulted in a $63m valuations with the $5m Limit method equating to $2m.  The others had varying results in between.  It’s safe to say that valuing a company is not a science.  However, the levels of strategic thought that is used by angels are non-the-less high level.  The angel must use other intangibles of the deal along with their own personal strategic thoughts to derive if the deal will result in their targeted results.  I do believe that which method an angel chooses would be influenced by their overall intentions when evaluating the opportunity.  I also found it very interesting that Amis and Stevenson covered the influence of greed at the end of the valuing section.  I would include ego along with greed as a main reason that a deal may result in being over-valued.  Anytime money is included greed will influence our strategy as well as the others, including the founders or members of the company itself.  It also can play a serious role later in the life of the investment when other rounds of investing come to play.  I also include ego as people don’t want to be wrong.  One can also derive to the conclusion that ego certainly would have a stance with the current owners or founders as greed and ego work together to influence what they may feel their company is worth. 

In my company, I am planning of including a start-up advisor as there are a multitude of aging builders in our area. As relationships equate to real dollars in my business, I clearly see the value.  I find it very interesting and helpful that the method of a “Start-up Advisor” was included.  This would also be very helpful as we implement our land strategy into the company after a couple of years.  It is possible that the advisor may also play a role in the investment of that land strategy.  As we begin to build, and I continue my career the advisor may be more hands on but I see that person changing when my business becomes my full time career. 


Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

4 thoughts on “Valuation – Winning Angels

    1. Thanks again for re keeping Colin! I am just feeling out how to approach a true high level advisor. First set for me is with an experienced partner type advisor for the short term. The conversations have gone very well. Discussed the opportunity with 3 people and I think 2 are very interested.


  1. Hi Jeramy,

    I agree with Winning Angels that value is more than money. I believe that providing a product in high demand with limited supply is a form of value. I like your idea about advisors. It is hard to do something you have never done before, adding the wisdom of those individuals that have already succeeded is essential. Great post!



  2. Hi Jeramy,

    I think it is great to hear from other student’s about their experience that can be applied to what we are studying. Some people think they can sell their business and open others and I think thats why some investors include anti – compete language that prevents the entrepreneur from starting another competing business for a period of years. Again in this post you talk about realizing your own limitations and how hiring an advisor will help you make better decisions and I admire that way of thinking.


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