The tricky art of valuing a company

Editor's note: Ivan Nikkhoo is managing director at Siemer & Associates, a boutique merchant bank that provides highly targeted M&A, capital raising and financial advisory services to Internet, software and digital media companies.

One question I am most often asked is: “How much is my company worth?”

In addition to the customary, “it depends,” my answer is usually followed by: “It depends on who the buyer is.”

As Bill Gates famously said: “Intellectual property has the shelf life of a banana.”

So, in the tech world, there is a constant and continuous search for good, scalable intellectual property (IP). “Scalable Intellectual property” essentially means that the system or network of a company must have the ability to be expanded - and keep up with the times.

Tech companies are generally cash rich, and the pace of internal developments can’t possible keep up with the necessary growth expected by Wall Street. So there's always appetite for growth opportunities.

There are ways to work out the value of your company, and here are my three top tips for doing so:

1. Hire a good investment banker. A good investment banker does many things for a client. He finds the right buyers, creates urgency, positions the company for the highest valuation, negotiates, and, most importantly, acts like a therapist when, inevitably, the deal looks like it is going South 20 times before it actually closes as parties are fatigued, frictions rise, and common sense is replaced by ego.

2. Find the right buyers. And any good investment banker knows that there is one buyer out there that is willing and able to pay the extra premium for an asset.

3. Know the dynamics of your particular industry. So when the time is right for you to check the market for an exit, hire a banker specialized in your segment, make sure your potential buyers understand and focus on the strategic nature and increasing value of the transaction and take the time to fully understand the landscape.

As Warren Buffet said, “Price is what you pay. Value is what you get.”