Question

Valuation" Please respond to the following: Entrepreneurs want to value their companies as low as they can for stock option purposes, but as high as they can when they are attempting to raise capital. Analyze how often this statement may be true. Provide an example to support your response.

Answer 1

the given statement is TRUE as entrepreneurs often value their company very low when they want to issue option to themselves as it can be seen when issue of right shares are done at a lower price than what is currently there in the market.

they always want to value their company lower because it will help them to gain the shares at a lower price.

While when they are attempting to raise capital, they often want to value their company as high as possible in order to get adequate capital and present strong influence in the minds of potential investor. When raising capital they are the potential sellers, of their stake, so they want to value their company high in order to gain the highest realizable value of their shares.