Questions

I'm a Co-Founder selling my equity due to disagreement, has anyone sold equity to 3rd party to gain best value in the exit after 3 years sweat equity?

We have two Co-Founders currently, and the business has only achieved sub $500,000 in revenue 3 years running, with only $25K each total paid to both Founders over entire 3 years. The rest has been reinvested in a few staff part-time salaries and company growth - marketing, digital, product development etc. I'm now seeking reasonable equity and my Co-Founder is undervaluing so I'm exploring corporate buyers.

3answers

In this business environment, a “corporate buyer” will be looking at your net income and value you based on a multiple of such. For example if the company generated $500,000 but only earned $75,000, you may be looking at a value of $200-$300,000 from a corporate buyer. It also depends on whether or not that revenue is stable and is reliant on you and your partner, in which case you might get an even lower pay out.


Answered 2 years ago

Sweat equity isn't worth much in my opinion.


Answered 2 years ago

The valuation of a company is about the future, not about the past. Sure, the company past performance is a piece of it, but really only as it relates to the future value; either in real dollars or some other value; like engaged users, etc. I'm going to tell you something you might not like, the future value of a company is highly dependent on the leaders running it. Doesn't sound like the two of you get along anymore; sorry. The only money you'll attract is 'bad money' and your sweat equity will just evaporate. Here's what I'd advise; build a plan to increase the future value in the next 12/18 months, pay one of you to RUN the company, with a real salary, the other one needs to step aside from the day to day (no salary). Execute on THAT plan, then, once you have momentum, measured by your industry metrics, then raise money to support that plan vs. trying to cash out. Bummer about the situation, the way out is not a buyer, it is about building future value.


Answered 2 years ago

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