The value of an investment is usually calculated based on a recurring income stream over time. If you held on to your equity instead of selling it, you'd be entitled to a 3% share of the profits over the life of the company, not just for one year. And if the company was growing, the income stream would be increasing over time. So valuing the company based on one year's profits seems unfair. (Also, if the company were ever sold, you'd be entitled to 3% of the proceeds.)

Also, since the founder would know what the real profit of the company was, why would he be basing the valuation on market sector averages? It sounds like he's trying to take advantage of you.