Pre-valuation of the company
The value of the company is ill-defined until it actually has some assets and/or product. You give the investors whatever equity stakes you and they negotiate as appropriate for their investment based on how convinced they are by your plan and how badly you need their money.
the financial information is generally filed via SEDAR (Canada) or SEC (US) before the conference call with the investment community.  This can take before either before the market opens or after the market closes.  The information is generally distribute to the various newswire service and company website at the same time the filing is made with SEDAR/SEC. Thank you very much for this thoughtful response.  In my opinion the judges care more about the why behind your valuation rather than a how.  Anyone can use a formula, but it takes so much more to understand why to use the formula.    Personally, the 'why' is going to be the toughest part for me understand and wrap my head around.  Once again thank you for the advice and the tip. Lets say the hurdle rate for this company is 10% and the current return on assets is 8%. A linear increase in revenue and earnings would actually destroy some value as projects that have a 9% return are accepted even though they destroy value for the shareholder.  hope this helps! Yes, an investment can be made in a company before IPO. The valuation process is similar as that done for arriving at IPO or for a normal listed company. The difference may be the premium perceived for the idea in question. This would differ from one investor to other. For example, whether Facebook will be able to grow at the rate and generate enough revenues and win against competition is all a mathematical model based on projections. There are quite a few times the projection would go wrong, and quite a few times it would go correct. An individual investor cannot generally borrow from banks to invest into a company (listed or otherwise) (or for any other purpose) if he does not have any collateral that can be kept as security by the bank. An individual can get a loan only if he has sufficient collateral. The exceptions being small personal loans depending on one's credit history. The Private Equity placement arm of banks or firms in the business of private equity invest in start-up and most of the time make an educated guess based on their experience. More than half of their investments into start-ups end up as wiped out. An occasional one or two companies are ones that they make a windfall gain on. Source, see if you have access to it Convertible notes are often used by angel investors who wish to fund businesses without establishing an explicit valuation of the company in which they are investing.    When an investor purchases equity in a startup, the purchase price of the equity implies a company valuation.  For example, if an investor purchases a 10 per cent ownership stake in a company, and pay $1m for that stake, this implies that the company is worth $10m. Some early stage investors may wish to avoid placing a value on the company in this way, because this in turn will affect the terms under which later-stage investors will invest in the company.  Convertible notes are structured as loans at the time the investment is made.  The outstanding balance of the loan is automatically converted to equity when a later equity investor appears, under terms that are governed by the terms set by the later-stage equity investor.  An equity investor is someone who purchases equity in a company. Example:- Suppose an angel investor invests $100,000 using a convertible note.  Later, an equity investor invests $1m and receives 10% of the company's shares.  In the simplest possible case, the initial angel investor's convertible note would convert to 1/10th of the equity investor's claim.  Depending on the exact structure of the convertible note, however, the angel investor may also receive extra shares to compensate them for the additional risk associated with being an earlier investor The worst-case scenario would be if the issuing company initially performed well, meaning that the debt would be converted into shares, and subsequently went bankrupt. The converted shares would become worthless, but the holder of the note would no longer have any recourse. Will twitter have to sell their offices and liquidate staff to close this debt? This depends on the seniority(priority) of the debt. Debt is serviced according to seniority. The higher seniority debts will be paid off first and then only the lower seniority debts be serviced. This will all be in the agreements when you enter into a transaction. When you say liquidate staff you mean sell off their assets and not sell their staff into slavery. Other metrics like Price/Book Value or Price/Sales can be used to determine if a company has above average valuations and would be classified as growth or below average valuations and be classified as value. Fama and French's 3 Factor model would be one example that was studied a great deal using an inverse of Price/Book I believe. "Many thanks for thedetailed  response, appreciate it. But I am still not clear on the distinction between a public company and the equity holders. Isn't a public company = shareholders + equity holders? Or do you mean ""company"" = shareholders+equity holders + debt holders?" "Complex matter that doesn't boil down to a formula.   The quant aspect could be assessed by calculating WACCs under various funding scenarii and trying to minimize, but it is just one dimension of it.  The quali aspects can vary widely depending on the company, ownership structure, tax environment and business needs and it really can't be covered even superficially in a reddit comment...  Few examples from the top of my mind to give you a sense of it:  - shareholders might be able to issue equity but want to avoid dilution, so debt is preferred in the end despite cost. Or convertible debt under the right scenario.  - company has recurring funding needs and thinks that establishing a status on debt market is worth paying a premium to ensure they can ""tap"" it whenever hey need to.  - adding debt is a way to leverage and enhance ROI/IRR for certain types of stakeholders (think LBOs)  - etc etc etc  Takes time and a lot of experience/work to be able to figure out what's best and there isn't always a clear answer.  Source: pro buy side credit investor with experience and sizeable AuMs." Our company gives the best business valuation services. If you want to any business valuation service, then you can come to our company website. When it comes to obtaining a business valuation, business owners are faced with a myriad of choices of the business valuation services. Kirk Kleckner valuation businesses need understanding and analysis of a variety of complex factors including detailed technical knowledge of value drivers and in-depth industry knowledge. "First, you mentioned your brother-in-law has ""$100,000 in stock options (fully vested)"". Do you mean his exercise cost would be $100,000, i.e. what he'd need to pay to buy the shares? If so, then what might be the estimated value of the shares acquired? Options having vested doesn't necessarily mean they possess value, merely that they may be exercised. Or did you mean the estimated intrinsic value of those options (estimated value less exercise cost) is $100,000? Speaking from my own experience, I'd like to address just the first part of your question: Have you treated this as you would a serious investment in any other company? That is, have you or your brother-in-law reviewed the company's financial statements for the last few years? Other than hearing from people with a vested interest (quite literally!) to pump up the stock with talk around the office, how do you know the company is: BTW, as an option holder only, your brother-in-law's rights to financial information may be limited. Will the company share these details anyway? Or, if he exercised at least one option to become a bona-fide shareholder, I believe he'd have rights to request the financial statements – but company bylaws vary, and different jurisdictions say different things about what can be restricted. Beyond the financial statements, here are some more things to consider: The worst-case risk you'd need to accept is zero liquidity and complete loss: If there's no eventual buy-out or IPO, the shares may (effectively) be worthless. Even if there is a private market, willing buyers may quickly dry up if company fortunes decline. Contrast this to public stock markets, where there's usually an opportunity to witness deterioration, exit at a loss, and preserve some capital. Of course, with great risk may come great reward. Do your own due diligence and convince yourself through a rigorous analysis — not hopes & dreams — that the investment might be worth the risk." "The textbook answer would be ""assets-liabilities+present discounted value of all future profit"".  A&L is usually simple (if a company has an extra $1m in cash, it's worth $1m more; if it has an extra $1m in debt, it's worth $1m less). If a company with ~0 assets and $50k in profit has a $1m valuation, then that implies that whoever makes that valuation (wants to buy at that price) really believes one of two things - either the future profit will be significantly larger than $50k (say, it's rapidly growing);  or the true worth of assets is much more - say, there's some IP/code/patents/people that have low book value but some other company would pay $1m just to get that. The point is that valuation is subjective since the key numbers in the calculations are not perfectly known by anyone who doesn't have a time machine, you can make estimates but the knowledge to make the estimates varies (some buyers/sellers have extra information), and they can be influenced by those buyers/sellers; e.g. for strategic acquisitions the value of company is significantly changed simply because someone claims they want to acquire it. And, $1m valuation for a company with $500m in profits isn't appropriate - it's appropriate only if the profits are expected to drop to zero within a couple years; a stagnant but stable company with $500m profits would be worth at least $5m and potentially much more." What this abbreviated balance sheet tells you is that this company has negative equity.  The liabilities are greater than the value of the assets.  The obvious problem for the company who wants to do business with you is that they are going to have a real hard time accessing credit to pay off any debts that they incur with doing business with you.  In this case, the recommended course would be to ask them put cash up front instead of putting them on account. You don't really need to look at the income statement to see that they are currently underwater.  If their income statement turns out to be splendid, then you can wait for them to get their liabilities under control before you set up an account for them. If the cash flow information is complete, the valuation can be determined with relative accuracy and precision. Assuming the monthly rent is correct, the annual revenue is $1,600 per year, $250/mo * 12 months - $1,400/year in taxes. Real estate is best valued as a perpetuity where P is the price, i is the income, and r is the rate of interest.  Theoreticians would suggest that the best available rate of interest would be the risk free rate, a 30 year Treasury rate ~3.5%, but the competition can't get these rates, so it is probably unrealistic. Anways, aassuming no expenses, the value of the property is $1,600 / 0.035 at most, $45,714.29. This is the general formula, and it should definitely be adjusted for expenses and a more realistic interest rate. Now, with a better understanding of interest rates and expenses, this will predict the most likely market value; however, it should be known that whatever interest rate is applied to the formula will be the most likely rate of return received from the investment. A Graham-Buffett value investor would suggest using a valuation no less than 15% since to a value investor, there's no point in bidding unless if the profits can be above average, ~7.5%.  With a 15% interest rate and no expenses, $1,600 / .15, is $10,666.67.  On average, it is unlikely that a bid this low will be successful; nevertheless, if multiple bids are placed using this similar methodology, by the law of small numbers, it is likely to hit the lottery on at most one bid. While there are many very good and detailed answers to this question, there is one key term from finance that none of them used and that is Net Present Value. While this is a term generally associate with debt and assets, it also can be applied to the valuation models of a company's share price. The price of the share of a stock in a company represents the Net Present Value of all future cash flows of that company divided by the total number of shares outstanding. This is also the reason behind why the payment of dividends will cause the share price valuation to be less than its valuation if the company did not pay a dividend. That/those future outflows are factored into the NPV calculation, actually performed or implied, and results in a current valuation that is less than it would have been had that capital been retained. Unlike with a fixed income security, or even a variable rate debenture, it is difficult to predict what the future cashflows of a company will be, and how investors chose to value things as intangible as brand recognition, market penetration, and executive competence are often far more subjective that using 10 year libor rates to plug into a present value calculation for a floating rate bond of similar tenor. Opinion enters into the calculus and this is why you end up having a greater degree of price variance than you see in the fixed income markets. You have had situations where companies such as Amazon.com, Google, and Facebook had highly valued shares before they they ever posted a profit. That is because the analysis of the value of their intellectual properties or business models would, overtime provide a future value that was equivalent to their stock price at that time. Aside of the other (mostly valid) answers, share price is the most common method of valuating the company.  Here is a bogus example that will help you understand the general point: Now, suppose that Company A wants to borrow $20 Million from a bank... Not a chance. Company B? Not a problem. Same situation when trying to raise new funds for the market or when trying to sell the company or to acquire another