Case study: valuations when selling a business share

Background

Blockchain App is a new blockchain platform which enables decentralised, smart-contract transactions within the global construction sector. The platform has already been launched, although with a limited functionality, with first customers successfully using it. Scott, the founding owner of Blockchain App, needs additional funds of around $500,000 to further develop the platform’s functionality and integrity. Scott wants to raise the business development funds from sophisticated private investors.

The problem

Scott is uncertain how much his business is worth and what company share it is necessary to sell to obtain the required business development funding.

The solution

Scott engages a business valuer to estimate the fair market value of Blockchain App. The valuation specialist performs a startup business valuation and estimates the business value given the required funding is obtained and the platform is rolled out as planned.

Based on the business value, the share of the company required to be sold in exchange for the investor funds is much lower than what Scott initially contemplated. The business valuation report provides detailed reasoning on how the estimated value is derived and serves as a good negotiation tool to demonstrate the business potential to prospective investors.

The result

Scott uses the business valuation report to negotiate the business funding with private investors. He obtains the required funds and moves on with the platform development.

By Julia Podgorbunskaya, CPA, Senior Business Valuer at Professional Business Valuers
January 2021

(61) 02 4295 0079
Julia@ProfessionalBusinessValuers.com.au
www.ProfessionalBusinessValuers.com.au