Understanding Valuations: Is This Business Worth What They’re Asking?

Why valuation is the hardest question in equity crowdfunding

Debt investors care about coupons and default risk. Equity investors must ask: Am I paying a fair price for this slice of the company? There is no single “right” number — especially for private SMEs. This article gives you language and heuristics, not a buy/sell signal. For equity basics, see Equity Crowdfunding.

Pre-money and post-money (simple)

Pre-money valuation is what the founders and lead investors agree the company is worth before new money comes in. Post-money is pre-money plus the amount raised in this round. Your ownership percentage (before dilution from future rounds) is typically based on your investment divided by post-money. Example (illustrative): pre-money GHS 4,000,000 + raise GHS 1,000,000 = post-money GHS 5,000,000. A GHS 50,000 ticket is roughly 1% of the post-money company — always verify exact terms in the offer.

How valuations get set in practice

Private company valuations are negotiated — from founder expectations, comparable transactions (where disclosed), revenue or EBITDA multiples used as sanity checks, and sometimes independent advice. The platform does not guarantee that the price is “fair”; the offer document explains the basis. Your job is to stress-test whether the story matches the number.

Multiples — illustrative, not universal

Investors sometimes compare price to revenue or earnings using multiples (e.g. enterprise value to sales). For Ghanaian SMEs, multiples vary wildly by sector, growth stage, margin quality, and data reliability. There is no official “correct” multiple for all SMEs. Use multiples as a conversation with yourself: “At this price, how much future profit must the business deliver to justify my entry?” If the implied growth is heroic with no operational plan, pause. Treat any peer comparison in marketing as selective unless independently verified.

Red flags in valuation narratives

• Valuation jumps with no new traction or risk reduction since the last round.
• Only the rosiest comparable companies cited — ignoring weaker peers.
• Related-party transactions that set the price without arm’s-length evidence.
• Projections that imply a “hockey stick” with no bridge from today’s numbers.

Read next

How to Evaluate a Business Before You Invest, How to Read an Offer Document (especially financials and risk factors), How to Build a Crowdfunding Portfolio.