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Business Plan Exit StrategyPAGE 3 Company Valuation & ExitsThis method combines company valuation with an exit strategy. The risk is in the valuation of the company, as a par value, must be set on the stock to derive the amount of capital needed. The balance of the investors decision will rest equally on the credibility assigned to the valuation, as well as the validity of the buyback offer. One common mistake is not to authorize enough shares and therefore establish
ridiculous high par value on preferred stock of a start-up The error in
judgment is that the investor cant sell or trade this stock, nor
can the company buy it back at 200% of par value, because its just
too much. To avoid this pitfall, authorize more shares to make the par
value more real. And then you dont need to issue all the shares
when the money arrives. Allocation of stock is yet another piece of the
puzzle. JB, the two strategies you mention in your posting (selling the business and transferring ownership of the business to a younger family member) are the same as liquidation for an investor. One reason sophisticated investors prefer preferred stock is that they hold a good position for obtaining a portion of the assets of the corporation upon liquidation. What are other options? continued
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