Bear in mind that until a business gets fairly sizeable — there are no great comparables, no great valuation metrics.
Once you hit $10m, $20m in revenues, you can start to use public comps as a reasonable way to value a “startup”.
But in the early days — none of the valuations make sense.
You want a $4.7m post money. But really, if you are pre-revenue, how can you even be worth $100k? Or $1m? Let alone $4,700,000 — already?
My first startup had about $50m of R&D behind it, $6m in customer commits, and our pre-money valuation was $4m. My second had barely a prototype, and its pre-money valuation was $6m. I mean — why?
The reason is context.
Early stage investments are around context.
$1m is a common pre-money valuation for many tech startups outside of the Bay Area at the early seed stage. One simple reason is investors typically look to invest $X00,000 for about 30% of the company.
By contrast, YC is the most successful accelerator. That creates a lot of context. Hot YC startups these days tend to get $7m pre, and the best ones $12m pre. There is no real reason. Other than — context. That’s what the last ones got.
So …
If the market is telling you the valuation is too high. It is.
Either go find another market that may tell you differently. Or adjust.
The reality is, your pre-seed, pre-revenue startup is worth nothing today — except as an option on potential future value. Valuing options is really, really tough.
