Paper valuation
What is paper valuation?
Paper valuation describes how much a privately held share which cannot be traded at an exchange, is worth 'on paper'. It tells a buyer or investor how much the owner thinks their business is worth.
Where have you heard about paper valuation?
On 'Dragon's Den'. When someone asks the dragons for money, the % of shares they offer in return implicitly makes a paper valuation of the shares and worth of the company. All the negotiation you see on screen is about the paper valuation.
What you need to know about paper valuation.
It's a crucial factor in all private trades. Let's say a person owns 100% of a business and thinks a buyer should pay £100,000 for 10% of those shares. 'On paper', the business is £1,000,000 whilst the owner's remaining shares are worth £900,000 - 'on paper'.
The tricky thing is that paper valuation isn't easily realisable because it's only used for shares that cannot be traded on an exchange. 'Exchange valuation' is the opposite: it describes the value of share directly tradable on an exchange.
