I’d like to learn a bit about exiting a private startup
company that I was a main partner in but left years ago.
I inquired about selling my stake to the main owners of the company and they basically said I need to reduce my valuation of the company by 80+% for various reasons. I’d like to know if these are legit reasons and realistic deductions.
Thanks for your inquiry. We are unfortunately a world apart on the value of the business
, and the value of your stock. There are many factors I think your analysis has ignored. Generally speaking, you have not accounted for any of the following important items:
1 Common stock not worth Preferred, no preferences...roughly 50% reduction in value.
2 Non-Marketability of stock (non public company, requires approval from BOD for you to sell your shares) - approximately 30% to 40% reduction in value.
3 Non Control / Minority stake - approximately 10% to12% reduction in value.
4 There’s an additional $500,000 in debt that although has been written off, still needs to be repaid, so this was not on the balance sheet I gave you...this adjustment brings your proposed $4.5M value to $4.0M.
We reviewed your proposal and received feedback from Pillsbury, and they provided us with the general percentage values noted above. Basically when you add all this up...here’s where we are at:
At approximately 4% of the business, your proposed value of $4.0M comes to $160,000
Less 70% for items 1 and 2 above ($112,000) = $48,000.
Less 45% for items 3 and 4 above ($21,600) = $26,400.
$160,000 less the deductions above puts us at about $26,400. After discussing we would be willing to purchase your stock for $35,000.