In my opinion, this section really separated the successful investors from the not so successful investors. The book defines valuation as “what you are willing to exchange for something else that you want.” The author provides several methods to evaluation and each method has its own subset of methods. Being completely candid I felt like some of the methods were hard for me to visualize due to the large amounts of capital that was suggested, such as the 5 million limit method or the Berkus Method. I felt more comfortable with the virtual CEO method or the Start-up Advisor method. These methods seem almost too good to be true with an offering of minimal risk and an exchange of time and knowledge for a fee and/or equity in the company. I can be very indecisive sometimes, and I tend to be drawn to products or services that allow me time to take a closer look before fully committing. For example, the gym I belong to allowed me to visit the gym for 30 days and enjoy all the privileges of a member of the gym without signing a contract or paying a membership fee. By the end of the trial, I had a better idea if the equipment would fit my needs and if the class availability would fit my schedule. The same can be said of the start-up adviser method. As a start up investor I can add some value in the initial stages in exchange for “minimal equity.”
This section also clued me in that maybe I have been thinking about investing on a very basic level along with many investors. I assumed that a good investing technique was to read the financials or pro forma and adjust with my own idea of the numbers to see if a profit could be made. The author instead encourages a “discount or kill” method. Instead of trying to force a profit quickly eliminate what simply will not work or what leads to little profit. Another misconception I had was thinking you have to focus on the plan or market instead of the better method of looking for low capital large market opportunities. I currently work in the commercial insurance business. One of my largest clients are venture capitalist that buy and sell residential apartments. I noticed that in the past couple years it seems that their interest has changed. They are no longer purchasing apartment complexes in bustling cities or college towns. My clients are now purchasing smaller complexes in smaller towns outside of major cities with opportunities to build and expand. I am sure they are spending way less capital but as cities start to overcrowd and people run to the suburbs, I am confident this will be a profitable investment.