There are no fixed formulas for ascertaining the valuation of a private company. In fact, when it comes to early-stage companies, there is little agreement amongst investors or entrepreneurs as to the method for ascertaining the “correct” valuation for a company. However, companies on Seedrs must hit their minimum target, at the stated valuation, in order to successfully fund. In this way, the Seedrs market place determines whether or not a particular valuation is appropriate.
Companies set their own valuations, in consultation with our Investment Team. While we will challenge valuations that we think are unreasonable, we don’t require companies to use a particular method for reaching their valuation.
We ask that companies justify their valuation in their campaign and we require them to provide evidence to back up any statements made. For example, about their financial performance to date, the size of the market they are operating in, the experience/background of their team. It’s then up to investors to decide whether the justifications are sufficient to support the valuation.
Once the pre-money valuation is set, we perform the calculations to get to the correct share price, based on the current issued shares of the company and other outstanding equity interests. We also perform all calculations to ensure you’re investing on a fully diluted basis (as far as possible) and that the company issues the number of shares that reflects the valuation presented.
We check that the company isn’t offering a better valuation to a particular set of investors in an investment round. An equity-crowdfunding round can be made up of a number of sources of capital – and some of that may come from investors directly to the company, rather than through our platform. Where that direct investment is part of the same investment round, we check that all investments are being made at the same valuation and the same share class, unless otherwise expressly disclosed.
Valuations can be scrutinised by investors – so be prepared to justify your figure.
Investors may request additional information from the company if they feel they need it to justify the valuation. We also encourage open and respectful discussion in the discussion forums about the valuation set by the company.
The number of shares issued reflects the valuation.
We enter into a subscription agreement with each company that specifies the share price, the number of shares to be issued in exchange for the investment funds and commits the company to issue that number of shares upon receipt of funds. We generally also require the company to set out its share capital table and warrant against this, to ensure that the number of shares being issued reflects the valuation.