Valuation basics
In one sentence
Early-stage valuation is a negotiation about price, driven by traction, team, market and competition between investors.
The simple version
There's no formula for valuing a young startup. Investors look at your progress, team, market size and how many other investors want in. 'Pre-money' is the value before new money; 'post-money' is after.
- 1Pre-money value
- 2+ New investment
- 3= Post-money value
- 4Investor % = investment ÷ post-money
Why it matters
Valuation decides how much of your company you give away for the money you need.
How to do it
- 1Know your numbers: traction, growth, revenue.
- 2Research typical valuations for similar companies and stages.
- 3Create competition by talking to several investors.
- 4Remember: a sky-high valuation now can make the next round harder.
- 5Use the dilution calculator to see the effect.
Real-world example
Raising 1M at a 4M pre-money means a 5M post-money; investors own 20%.
What the books say
Pre-money plus the investment equals post-money; ownership is the investment divided by post-money.
Common mistakes
- Anchoring on a number with no evidence.
- Choosing the highest valuation with the worst terms.
- Forgetting future dilution.
Questions people ask
What raises my valuation most?
Real traction and multiple interested investors.
References
- [1]
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