How many times have you lamented: “Yet another prospect involved in the family business. The family’s privately-held business, that is. What valuation number am I going to pick out the air this time?!” We’ve all been there. Valuing private companies is a tricky business indeed (pun intended).
We know why so many of our prospects have ownership interest in private companies. According to a 2013 Forbes article:
- Out of the 27 million firms in the U.S., nearly all are privately held.
- Among the 5.7 million firms with employees, less than 1% have shares listed on a U.S. exchange.
So it’s no surprise that there are many firms specializing in valuing private companies. The need for a valuation could be a desire to buy or sell, investments looking to exit, or in anticipation of an initial public offering (IPO), among other reasons. Hoovers and Dun & Bradstreet may be among the best known search tools in our field, but there are many others. For example, Prospect Research Review did a product review report on PrivCo.
Law of Diminishing Returns
Before you dive deeply into any specialized research, consider the law of diminishing returns. At what point are the time and resources you spend going to outweigh the benefit? If your prospect qualification to gift ratio is 7:1, you could be spending twelve hours on a dud. Then again, if you are researching a prospect likely to give her largest gift ever to your organization, you want to be gung-ho!
You also want to consider the full wealth picture before you dive deeply into one piece of that wealth. If the prospect is listed on Forbes Richest People in America are you certain you need to spend hours valuing one or more companies owned by him or her?
Return on Education
You also want to consider your return on education. Why value one private company, when you could give yourself the foundation to value all kinds of companies in the future?
When you have a prospect that demands a deep dive into company valuation, do your research on how to make a valuation and keep notes so that you can apply what you learn to the next private-company-owner prospect.
Top 3 Private Company Valuation Resources
Following are some of my favorite resources for deciding how to create a valuation and a jump-start of links to get you finding the data:
- ARTICLE: Jarmuz, Bill. “Private Company Valuation for the Prospect Researcher” APRA Connections magazine, Jun 23, 2006, Membership Paywall
- WEBINAR: Lamb, David. “Refresh: How to Estimate Private Company Value – And Rate A Prospect With The Information” APRA on-demand, Members $49 | Non-members $79
- LINK LIST: Aspire Research Group LLC, Favorite Link List-Business, Free
More Resources You Might Like
- Detailed Explanation on Private Company Valuation | PrivCo | undated
- Valuing Private Companies Is An Art, Not A Science | Forbes | 2013
- Private Company Valuation Online Courses | Coursera | Free
- 5 Simple Prospect Identification Lists You Can Build Right Now | iWave with Dun & Bradstreet | 2016
Thanks for the BV roundup, Jen! A replay of David Lamb’s presentation inspired us to test-drive a valuation resource subscription, and it’s a steep learning curve but so satisfying when it works. On the flip side, digging through the data can be a real rabbit hole.
My pleasure… and I am intrigued that you have a paid resource!