Your company's valuation is being questioned by an investor. How do you handle the scrutiny?

- ??? Listen carefully to the investor's concerns to gain insight into their perspective. - ?? Understand their points and identify any valid issues, such as market trends or financial inconsistencies. - ?? Tailor your response to address the specific issues raised and provide clear, factual explanations. - ?? Present supporting data and evidence to validate your company's valuation. - ?? Maintain open and transparent communication to build trust and resolve any doubts effectively.

You should be the first to question your valuation(s). Once you believe you are comfortable with it make sure you understand how the numbers are developed, what is the support for the conclusions. Many times valuations are questioned to see if you can actually support them confidently rather than they are wrong.

In high-growth startups, investors focus on future potential rather than the current stage. They assess how big the company can grow and whether it has a sufficient "Competitive Advantage Period" to expand rapidly, ensuring a profitable exit. For example, a SAAS Company with a market valuation multiple of 4x revenue is valued at $1 million now but is projected to reach $5 million in revenue in 5 years. This means a future valuation of $20 million. The increase from $1 million to $20 million offers investors a substantial return, even accounting for future dilution in ownership. Scrutiny around valuations can thus be handled by clearly demonstrating exit capability and future returns to investors.

Take a close look at the concerns, and balance your own emotional connection to the company with an investor's concerns - specifically, your ability to generate value in the long term. Don't be afraid of candid discussions with investors, they have you on the radar already and want honest data and thoughtful discussions in a problem scenario.

There are 5 major ways using generally acceptable accounting principles to value a business. Know not only which one your company is using, but which one your investor is using. Additionally, as a company leader you should always be soloing off sections of the business for valuation and get validation by outside sources. For example: what does Zillow say your building is worth? How much did you pay for that custom software? What is the Net Present Value of your cash flow? . . earnings? What is your customer base worth? What is someone willing to pay for your data? What are the fair market values of your assets, including inventory? What are your closest competitors worth? And more . .

Beyond meticulously prepared data, proactively anticipating investor questions and tailoring your presentation to their specific interests can set you apart. For instance, if an investor is known for prioritizing environmental impact, highlighting your company's sustainability initiatives and quantifying their financial benefits can resonate deeply and enhance your valuation narrative.

The financial diligence is unparalleled in its importance. My number one tip is that a deal takes longer than you think to close. So you have a model of your business financials for 12-36months. Makes sure the first 3-6 are easily achievable. So that you hit those numbers. Then you can show investors you have forecast accuracy and can build trust!!

In the Bible, when Nehemiah was rebuilding Jerusalem's walls, he faced opposition and doubt. He responded by setting guards, working day and night, and presenting clear plans and progress reports. Emulate Nehemiah by meticulously preparing your financial statements, growth projections, and relevant metrics to address the investor's concerns, showing that your valuation is built on solid, transparent data and a Divine vision for the future. #divineintervention #gabenfreude #MentalHealthAwarenessMonth

Beyond highlighting strengths, framing them in the context of market opportunity can be even more impactful. By demonstrating how your company's unique assets are poised to capitalize on emerging trends or underserved segments, you're essentially painting a picture of future growth potential. For example, during a recent funding round for a healthcare technology company, investor skepticism about the startup's valuation was addressed by showcasing their innovative solution's alignment with the growing demand for telemedicine. This strategic positioning helped secure $10 million in funding, a 25% increase from the initial target.

Create a great battle card which shows why you are offering what the customer wants better than your competitors. Then to expand. What it costs to deliver on your promise, and what profit per unit this will deliver!

In the Bible, Joseph thrived in Egypt by leveraging his God-given ability to interpret dreams, turning a dire situation into a triumph. Highlight your company's unique strengths—proprietary technology, market position, and expert team—much like Joseph used his gifts to secure Egypt's future. Explain how these assets not only validate your valuation but also pave the way for future financial success and growth, reassuring the investor of your company's Divine potential. #divineintervention #gabenfreude #MentalHealthAwarenessMonth

A track record of success is undoubtedly valuable, but demonstrating an ability to learn from past challenges and adapt to changing market conditions can be even more compelling to investors. Sharing stories of how your company has overcome setbacks or pivoted its strategies can showcase resilience and adaptability, key qualities for long-term success.

In the Bible, Daniel’s unwavering faith and proven wisdom saved him from the lion’s den and elevated him in Babylon. Similarly, your company's stellar track record can turn doubt into belief. Highlight your history of exceeding targets, share triumphs that have bolstered your valuation, and reinforce your reliability, demonstrating that like Daniel, your trajectory is one of continued Divine favor and growth. #divineintervention #gabenfreude #MentalHealthAwarenessMonth

Flexibility in negotiations is essential, but it's equally important to establish a clear and well-reasoned "walk-away point." While compromise is key, maintaining a strong understanding of your company's intrinsic value ensures that you don't undervalue your hard work and potential. A thoughtful approach to negotiation can lead to mutually beneficial outcomes. For instance, during a recent negotiation, I successfully persuaded an investor to increase their initial offer by 20% by presenting a compelling case for the company's growth potential and negotiating favorable terms around milestones and future funding rounds.

Optimizing for valuation is one of the biggest mistakes founders make. A sharp investor can justify nearly any valuation by structuring the deal in a certain way. The valuation is just one of the dozens of terms you are negotiating. Most investors own preferred equity in the business, which comes with terms that can be far more consequential than the valuation. For example, a liquidation preference can have a much larger impact on the outcome for founders and teams in an exit than the valuation at which the investor came in. Focusing on the special terms and rights investors seek is a far better approach than obsessing over valuation.

I’ve seen so many founders over complicate and worry about the future perceptions and cap table dilutions rather than focussing on the here and now. With the focus on the next stop on the journey. Raising isn’t a paint by numbers, so have a range. Stick to it. Get the deal done quickly, then start delivering on your vision.

In the Bible, Paul adapted his approach when preaching to different audiences, showing flexibility while staying true to God's message. Apply Paul's Divine wisdom by being open to the investor's valuation points, discussing what a fair middle ground looks like. Flexibility in negotiation, backed by facts and an unwavering commitment to your vision, demonstrates strength and can solidify a fruitful partnership. #divineintervention #gabenfreude #MentalHealthAwarenessMonth

For the next step, elevate your investment strategy. When discussing the next steps with the investor, it's essential to highlight that market trends influence valuation. For example, AI companies often have higher multipliers. By examining other startups with similar traction, you can set realistic goals and benchmarks. Keep the investor updated on your progress to justify your valuation. This method highlights your understanding of market conditions and showcases your dedication to achieving set objectives. By maintaining your pace towards the goal, you can address any concerns the investor might have about your company's growth.

Follow up with all those that walked away post raise. Let them know you completed. Start to plant the FOMO seed. Create an easy to share 1 pager on progress each quarter (a diluted version of those that you share with your investors) to build that FOMO when you start delivering. Maybe those that walked away will walk back over if the story is compelling.