If you are planning to raise money from Angles of VC’s you need to understand how your venture is likely to be valued. Basically it is a black box with broad strokes. How each parameter corresponds to value is still unknown as it varies widely from one investor to the other. Specially if you have generated interest from multiple VC’s.
Jason Calacanis is one prolific and super successful angel. He is behind the extremely popular startup podcast “This week in Startups” and also the ‘Inside’ newsletters. He was the founder of Mahalo – the human curated web index.
Jason has deep understanding of the funded startup game and is super active with very defined positions on many contentious issues. He is never afraid of voicing his opinions and I respect him for that, even if I do not agree at times.
His recent post of The Valuation Vs Traction Matrix (he says it is work in progress) has some very pertinent points that founders need to pay attention to. “Startup valuations are not science, but they’re not magic either. It’s a bit of alchemy, combined with bizarre marketplace dynamics like famous founders getting 3x the price for half the traction,…” writes Jason.
For broad indicators this is what he outlines :
“I started the valuation at the basic valuation we tend to see in technology startups, which is $1–2m and go up to the eye-popping $12m (which is actually not the peak, just the highest end of normal).
- When you have just an idea or mockup, you are likely to do a “friends and family” round in the $1m range.
- If you have an MVP or unpaid pilots, you might get some angels or seed funds involved $3-4mn range (VCs invest, on average, when you have $2–3m in revenue or even earlier as trend shows)
- Paid pilots can take your valuation up to $6 – 8mn
- Once Revenue streams are established you can look at a $12mn valuation. …”
Read the full article for better understanding of one of the most opaque processes in the Startup life cycle. And how being reasonable and getting smart money along side yourself can win the day.
Link to the article: The Valuation vs. Traction Matrix https://medium.com/@jason/the-valuation-vs-traction-matrix-27049eb45fc