I just chatted with a founder. He wanted to know how to value his early-stage company.
Here are some golden nuggets from our convo:
(1) It’s the wild west out there in early-stage start-up land. Meaning – it’s a marketplace without fixed rules around valuation.
(2) It ultimately comes down to what investors are willing to pay.
(3) Strength of the team is quite important. Specifically: previous exits, domain expertise, unfair advantages like a specialized network, and affiliations.
(4) Product progress is also considered. Do you have an MVP? Do you have a pathway to strong IP? What’s defensible about what you’ve built / are building?
(5) Traction. This is one of the strongest signals for many investors. Specifically – paid pilots, elite partnerships, or lots of eyeballs.
(6) You don’t have to price the round right away. Capped convertible notes with discounts are fairly common in the early stages.
(7) Size of the market, how hot the space is, and the potential upside is also taken into consideration in the pricing.
(8) Beyond the fundamentals, don’t underestimate FOMO. It’s important to generate a lot of investor interest to show momentum and close quickly.
(9) Crowdsource valuations from investors / founders that know your space.
(10) Reference Crunchbase / Pitchbook.