#business-valuation
Methods and best practices for determining the fair market value of a business
The excess earnings method prices goodwill as profit above a fair return on tangible assets, capitalized at 15-20% — then adds tangibles for total value.
Appraisers value private companies off public trading multiples and past deals, then add a 20–40% control premium and subtract marketability discounts.
A traditional IPO raises $100M+ but costs 5-7% in fees; direct listings and reverse mergers are faster and cheaper but raise no capital.
Broad-based weighted average reprices preferred stock partway to a down round's price; full ratchet resets it fully — founders absorb the difference.
Enterprise value adds debt and subtracts cash from market cap, giving the theoretical takeover price buyers actually negotiate from.
A 30% private stake typically sells 30–40% below pro-rata value: a DLOC for missing control plus a 20–35% DLOM for illiquidity, compounded.
The Piotroski F-Score grades cheap stocks on nine yes-or-no tests of profitability, leverage, and efficiency: 8 or 9 signals strength, 0-2 signals a trap.
Post-money equals pre-money plus the investment — and which number a term sheet quotes decides whether a $1M check buys 20% or 25% of your startup.
Advisors earn 0.1% to 1% on the FAST grid with two-year vesting; NSOs tax the spread at exercise, restricted stock needs a Section 83(b) election in 30 days.
SBA 7(a) acquisition loans now need 1.25x coverage and a QoE above $3M — verify earnings, peg working capital, and diligence tax before you close.
A mature ESOP must buy back 2–5% of its shares yearly at fair market value — model the curve early and fund it with recycling, redeeming, or releveraging.
Post-money SAFEs lock each investor's percentage at signing, so stacked SAFEs dilute founders. Model caps, discounts, and warrants before you sign.
