Question

Why is the market value of sweat less than the market value of cash?

Answer 1

Entrepreneurs often ask me how to value the sweat equity invested in their startup. I used to offer a quick and easy response: It's worth whatever your investors tell you it's worth. But over the years, I have come to realize that sweat equity isn't the same thing as market value for your startup. Investors have no idea how to value sweat equity, and I now believe it's a bad idea to let them tell you how to do it. At a minimum, they could use this as a negotiating tool to undervalue your startup.