One question we almost always get at the Capital Match Point is, "What's on the mind of our investors?" And the honest answer to that is, "A lot." But one thing you can count on that's front and foremost in their mind is the value of your company. The reason they're interested in that is because they want to see how much equity in your company they're going to get in return for a capital infusion, and they're going to go about that in several different ways.
One method that they're going to commonly use, though, is what's called the price-to-earnings ratio. And what the price-to-earnings ratio is is it's, quite simply, the price of your stock divided by the earnings per share of your stock over a 12-month period. For example, let's say Company A's stock price is $20, and let's say the most recent annual earnings for Company A was $2 per share. The price-to-earnings ratio of Company A is 10. Now, the way our investors are going to use this information is, they're going to go out, and they're going to do some research on publicly traded companies in your market space, and they're going to look at an average of price-to-earnings ratios across those companies, and they're going to arrive at what this industry can support, and then they're going to make some determinations about how long it's going to take you to achieve sufficient revenue and sufficient earnings to execute an exit plan, and they're going to make some assumptions about what the stock markets at that point and time are going to have an appetite for in terms of public offerings or sales, and they're going to accordingly assign a price-to-earnings ratio to your company. And it's also important for you to understand this, because what you want to do is, you want to do your own homework so that you can go and, when the time comes, negotiate with the investors and really be prepared to defend the value of your company, because, after all, you're going to be giving up a portion of your equity in your company in exchange for the cash infusion.
And if you think you need help, get in touch with us at the Capital Match Point. That's what we're here to do. We're here to put you in the best position to negotiate when the time comes.

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