Entrepreneurial Finance, Fourth Edition: Finance and Business Strategies for the Serious Entrepreneur, 4th Edition

6

Valuation

Introduction

When I teach my MBA students about entrepreneurial finance, on Day 1 of the classes, I run through an exercise in which students attempt to value a company. You should know that many of these students have previously sat through high-level finance classes, know about discounted cash flows, and have their heads full of formulas. We look at the numbers. “Tell me what you would pay for the company,” I demand. The valuations range from zero to $300,000. Actually, I tell them, when the company was sold, it went for $38,000. It sold for the price of its inventory. There is a story behind the valuation that is not quantitative. The owner had to sell the company because his wife had told him that if he did not, she was going ...