Deal Making : Understanding Implied Value

Deal Making : Understanding Implied Value

Joe McVoyJoe McVoy of Profitable Marketing Systems talks about Understanding Implied Value Of Your Deal Before You Pitch your deal to investors and venture capitalists. Joe McVoy made a name for himself by selling products worth millions of dollars to Wal-Mart. Find below, the article written by Joe in his own words.

We had a deal proposed to us lately where the entrepreneur was totally unaware of some of the basic criteria an investor looks at when evaluating their deal.

I mention it here in the hopes that other entrepreneurs can avoid making this same mistake and avoid damaging their credibility with prospective investors.

We have seen the equivalent of what I will describe here three times in the last few months alone, so itʼs not a rare “one off” event.

The entrepreneur was looking for $40 Million for a real estate development project where the entrepreneur essentially had an idea and a location but no equity invested to date and no ownership or even any option to buy the site he had chosen.

What he did have was a nice looking web site, nice logo and a PDF download explaining his vision for the project. He was looking for the investor to put up the $40 Million and in exchange for that investment, the investor would own 49% of the project and the entrepreneur would own the remaining 51% as well as be Chairman and CEO of the project.

What he didn’t understand is that his proposal gave the project an immediate valuation of $80 Million before anything was done and gave him ownership of $20 Million of the 40 Million invested (by virtue of him owning 51% of the project from day 1). For the investor, to just recover his investment the project would need to add $40 Million in value for the investors ownership just to break even and match his initial investment.

While this entrepreneur had been running a similar project and was well qualified to run the operation, he was completely lacking in any understanding of the financial structure he was proposing.

Make sure you take a look at the valuation your proposal is giving your project and be prepared to defend that the valuation is accurate.

About the Author

Joe McVoy works with a group of angels and investment banks that can fund small and large projects. You are welcome to submit your proposals to Joe at joemcvoy@gmail.com or by mail to 1100 Nautilus Court, Lafayette, CO 80026, Phone: 720-890-8760, Fax: 303-747-4682. Areas of specialization include real estate, consumer products and any business model that can be cloned and rolled out across the country.


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