At Bootstrapp, we view the “value preserved “”the retention and/or accretion of potential value from the alternative chosen, as compared to other alternatives.” This is typically measured as the amount of equity value, in dollars, that a company’s leadership is able to retain for themselves, employees, and other shareholders instead of needing to sell the equivalent amount of equity-value to equity investors. This value typically grows as one projects into the future, with a strong correlation to the growth in overall enterprise value.
The Plain English Explanation
Think of value preserved as the of opportunity cost. Instead of missing out on something because you didn’t pursue an opportunity, you actually retain, gain, or preserve value within your company because you did not pursue an opportunity. Furthermore, opportunity cost is defined as “the loss of potential gain from other alternatives when one alternative is chosen.” Value Preserved, as we define it, is a type of opportunity benefit – i.e., “the retention and/or accretion of potential value from the alternative chosen, as compared to other alternatives.”
Let’s use an example:
What if you sold 10% of your company today for $1M. That would mean that your company is currently worth $10M. Not bad. Now what if in five years, it’s worth $50M. That same 10% of your company is now worth $5M – and recall that in this scenario you sold it for $1M. Obviously that’s all fine and dandy – an investor took a risk on you and they should be rewarded for it. However, what if you – as a savvy founder – were able to obtain that same $1M that you had originally needed, but split it up and took out $500k in debt, and then only sold 5% of your company for $500k – so that you still ended up with the same capital that you would have had otherwise, but you sold only half of the equity.