Kirsten Barker, President of Prendismo,  recently gave a new twist to an old saying: explicit knowledge is knowing that a tomato is a fruit (scientifically speaking).  Tacit knowledge is knowing not to use that tomato in a fruit salad.

The tacit knowledge, the sort of insider wisdom gained from experience is often the most difficult to capture, but the most important thing to have.

In my conversations with entrepreneurs, I see this all the time.   Here are some examples:

Whenever an entrepreneur accepts capital in exchange for ownership in the company (e.g., through friends & family, angel or VC investing) the company must be valued to determine each player’s share of the business.

Explicit knowledge (and very useful) knowledge on valuation models can be found in an article by William H. Payne, Senior Program Consultant, Kauffman Foundation.  Payne goes through terms like “pre- and post-money valuation” and provides formulas that are used to determine vaue.

Tacit knowledge (also very useful!) is what it feels like to go through the process of valuation and how much of it is negotiation.    You can find tacit wisdom in this clip featuring Lance Stewart, co-founder of Emerald Biostructures, talking about the valuation process during the growth of his company.  He discusses the details that have to be worked out and also describes the feeling of going through what he calls “some nasty discussions about what you are worth.”

My favorite line?  In talking about the differing perceptions of what might be fair as viewed from each side, Scott says:  “….at the end of the day it comes down to whether you want to do this with these people or not.”

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