Valuation Method for a Secondary Sale

In pricing a secondary sale here are some valuation techniques:

Estimate the value of the equity by multiplying the revenue by the multiple for similar companies.

For example, SaaS companies are sold for a multiple of 10X revenues.

Reduce the value of any debt the company has.

Divide the remaining value by the number of outstanding shares.

Use their 409A analysis to compare to the number you calculated.

Remember, 409A’s tend to push the share price down to provide lower-cost stock options to employees.

Other factors to include are time to exit and if the company is a candidate for an IPO or a buyout.

Finally, look for any recent secondary share sales as a guide to setting the current price.

 

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.