What's My New Company Worth?

Written by Stephen T. Furnari of Entrepreneur.com

David Lindsay, 38, is the CEO of Confluentia Group, a New York City start-up business analysis consulting firm in the financial services sector. Like the CEOs of many other young companies, Lindsay wanted to grant stock options to Confluentia's employees as performance incentives and to set a tone for the company's values. For Lindsay, the decision to grant options to employees was an easy one. However, making a decision about where to set the exercise price and how much of the company to give away was a different story.

"It was important to get that tension right between doing the right thing by employees and senior level staff -- in terms of showing integrity, being fair, and encouraging an entrepreneurial mind-set -- while also managing to maintain an appropriate level of control over the direction of the company and an equity stake that was in line with the risk I had taken," Lindsay says.

In October 2007, Lindsay found himself asking the all-too-common question that he couldn't easily answer: What's my company worth?

Determining the value of a growing company is a critical step. It will come into play not only when granting options to employees, but also when raising capital from investors, selling assets or buying out a partner.

Value your company too low, and you can give too much of it away. On the other hand, value your company too high, and you may turn investors away when you're raising future rounds of capital.

According to Carmel, Ind. independent valuation expert Michael Pellegrino, the process of determining a company's value is part art and part science.

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