Pre-revenue Valuation Exercise: Use the three valuation methods provided (Scorecard Method, Venture Capital Method, and Berkus Method) to determine the value you as the investor would place on these two businesses. Provide the value and your analysis as to why the value is appropriate.

Company 2

Company 2 is a Nevada-based LLC with 2 members. One member owns 25% of shares and provided $80,000 and the other owns 75% and developed the technology that drives the business. The company has developed a water purification system that utilizes a simple combination of naturally available mineral and sunlight to purify water. The market for the product includes relief and development organizations, camping/survival enthusiasts among others.

The technology has a provisional patent and is working on a utility patent. It might take another 2 years to receive the final patent. Many water purification companies exist and 3 have a pretty strong place in the market, dominating shelf space in sports and outdoors retail stores.

Although pre-revenue, the company anticipates revenues of $750,000 in year 1 and $3.5 million in the second year. They anticipate a break even in year 3. Year 5 revenues could be nearing $10 million. The investor has experience with three other start-ups, but not in this industry. The inventor has not been a part of a start-up before.

The company is seeking an investment of $500,000 in return for a 15% equity position post-money. If the technology is proven and if it can gain credibility, it could have a significant role in helping people in developing nations have access to clean drinking water. This could have life-saving potential for millions of people.