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Finance for Non-Financial Managers
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much more for the company now, because it has less risk and a
higher certainty of a good return on investment. And the selling
stockholders are generally entitled to a better price because
they rode out the rough times carrying all the risk.
Of course, like any acquisition transaction, the outcome will
be the result of negotiation more than calculation and logic, as
each party tries to present his or her case and convince the
other to accept it or something close to it. For this reason, CEOs
wishing to buy or sell will typically enlist the services of negotiat-
ing experts, such as investment bankers, mergers and acquisi-
tions (M&A) consultants, or lawyers skilled in deal making.
Manager’s Checklist for Chapter 12

❏ Angel investors are often the first step for entrepreneurs to
find outside financing, after they have exhausted their
“friends and family” resources. Angels will typically accept
the highest risk and make the smaller investments that
very early stage companies need to get started.
❏ Venture capital investors are often the next stage for the
entrepreneur. They will invest larger amounts, but will typi-
cally ask for larger stakes in the company and expect it to
make more progress before they will invest.
❏ Valuation of the company when it is not yet earning a prof-
it, or even bringing in revenues, is a challenging task that
is crucial to the company getting investment capital, yet
the lack of real data typically reduces the decision to
negotiation rather than calculation.
❏ While the initial public offering is often the “pot of gold at
the end of the rainbow,” few companies realize the dream
of achieving that goal. Many more are acquired by strate-
gic partners, sold once they have matured, or simply run
under private ownership.