Cambridge Cluster

Image via Wikipedia Highly qualified founders of firms spinning out of a university need to be compensated by a high first round valuation for the careers they have forfeited to start a company.  For example, newly qualified solicitors in London can earn £100k per year; senior partners in large professional firms can expect to earn over £2million per year and salaries of senior people – equivalent to successful entrepreneurs will start at £500k.

So if we have four founders, they have “given up” earnings of 4 * £500k = £2million per year say over ten years amounting to £20million.  So the minimum the company must be sold for after ten years is £20million.  But when we do our busines plan with Equity Fingerprint, we have to allow for dilution.  So if the founders are left with 25% after ten years, they need to sell the business for £80million to be as well off.  Of course, you can apply all sort of discounts and NPVs but if you allow for salaries and pensions of top Civil Servants the figure will be the same.

Of course if you want to live the good life, you will need a couple of houses and yachts and cars and the odd football club.  So you have to motor to keep up with your city slicker friends!