Kyle
If you were to ask 10 different startup founders how valuation works or how they got their valuation, you would probably end up with 10 extremely different answers. And all 10 of them probably backed by some bit of logic. As confusing at it is, valuation is probably the most important data for any startup.
Valuation is important because it determines the share of the company they have to give away to an investor in exchange for money.
“Say you are looking for a seed investment of around $100, 000 in exchange for about 10% of your company. Typical deal. Your pre-money valuation will be $1 million. This however, does not mean that your company is worth $1 million now. You probably could not sell it for that amount. Valuation at the early stages is a lot about the growth potential, as opposed to the present value.” Funders and Founders wrote on their blog.
In talking with startups everyday we hear so many different valuations. We talked with a founder with an iPhone app that hadn’t even hit the market. They had no users, no customers, and no early funding, yet they told us they were looking at a post money valuation of $10,000,000. We’ve also seen startups that had thousands of users, legitimate press traction, and small seed rounds raised value themselves at $1 million dollars.
The infographic below from fundersandfounders.com sheds some light on valuation and how to measure a company’s potential.
The infographic details the valuation process from early stage, through scaling stage, and then through exit.
