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  1. #1
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    What equation is used to figure a companies worth?

    As some people already know from other posts I am trying to start a business. The idea is to take my business idea and structure to the Shark Tank but in order to do this I feel it is vital to understand how the sharks calculate a businesses worth by the investment amount and equity alone. For insurance if someone asked for $125k for 10% equity how do the sharks come up with $1.25M as the companies worth?

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  3. #2
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    In the example you mention they would be buying 10% of the company for $ 125K. 10% is 1/10th of the company so 10 times 125K is 1.25 million. If they have asked for 60 k for 5% of the business that is 1/20th of the business so multiply 60K times 20 (5% of the company is 1/20th.

    Of course in figuring what a company is worth they may look at scalability, profitability, the chance to license a product to produce a profit with little effort. They also look at the people they would be dealing with and any of many, many more factors.

  4. #3
    Unpaid WDF Intern TheGAME1264's Avatar
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    Usually the rule for buying a business is (annual profit x 20). Since you don't know your annual profit, you'd have to have a realistic projection.
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  5. #4
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    Quote Originally Posted by turboguy View Post
    In the example you mention they would be buying 10% of the company for $ 125K. 10% is 1/10th of the company so 10 times 125K is 1.25 million. If they have asked for 60 k for 5% of the business that is 1/20th of the business so multiply 60K times 20 (5% of the company is 1/20th.

    Of course in figuring what a company is worth they may look at scalability, profitability, the chance to license a product to produce a profit with little effort. They also look at the people they would be dealing with and any of many, many more factors.
    So 60k multiplied by 20 is 1.2M. The lower amount of money your request the more each share of the business Is worth. Is this the right Idea?

    The first draft I responded before I went to sleep. Now I go rest and I am thinking more clear.
    Last edited by Thetutguy; Mar 12th, 2016 at 05:11 PM.

  6. #5
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    Quote Originally Posted by TheGAME1264 View Post
    Usually the rule for buying a business is (annual profit x 20). Since you don't know your annual profit, you'd have to have a realistic projection.
    Let me rephrase the last. As I now have had some rest I am thinking a little more clear.

    I have seen this time and time again on the show. People throw out a number and when the sharks estimate the companies worth off of the amounts you can tell by the expression of the presenters face that they didn't know the provided information. They try to deny this by covering it up and saying this is what they believe their company is worth or their business could be worth in the future. The ignorance isn't the end game of the deal the key is making good on the presenters Volatility and Credibility. What confirms this in a shark? Having the answers to the questions they ask. In my case my extensive research and having been on the consumers side being fulfilled by the business will work to my advantage. The person that is most qualified to come up with a solution in any one problem is the person who has been in the thick of the problem at hand.

    Revised above
    Its not that I am going to try to predict the first annual sales for my business. The Idea is to offer a really low amount to appease the sharks and be willing to go up to 50% leaving plenty of chum to place in the water. My major goal is to find a partner. All I will be asking for is enough to pay off my minor debt which currently I am unable to do with my only steady job as a security guard. This will allow me to rebuild my credit and help out money wise in the future. Like I said I can design and everything aside from the coding. The sharks will have the resources to have the website built in a fraction of the time than any other route. This is the route with the shortest turn around rate.


    If by chance the offer does not go through well being that it is publicly televised the Idea will be advertised nationally and other offers are sure to follow.

    I know how to work this system. I am only going to tell the sharks the bare bones of the business plan and structure. informing them sense the only thing proprietary about the business is the federally Copy Written and Trademarked business name and the services produced by the employees. I do not wish to tell Corporate secrets on a nationally televised program as those secrets are what will keep us on top for the foreseeable future.

    My ace that I will be holding in my pocket will be telling them that I am willing to make the contract based on the contingency of me being able to convince them that my whole business structure is sound once in a private setting.

    This is how confident I am on my business plan and structure. Yes there will be the fear of losing the contract but I have never heard of a success story which didn't involve risk or sacrifice.
    Last edited by Thetutguy; Mar 12th, 2016 at 05:49 PM.


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