It’s easy for a startup entrepreneur to be trapped with the question “So what’s your valuation”. If you throw out too high a number that can be the end of the discussion; too low and you’ve left something on the table. The video below offers one answer: basically it suggests you say you’ll let the market decide.
That’s a reasonable answer since investors often have much more experience than the entrepreneur in knowing current valuation ranges. Yet, frequently investors will insist on an answer to better determine whether they should pursue further investigation of your company. So just in case the “let the market decide” answer doesn’t cut it, you’d better have a backup answer ready before you meet with investors.
You need to get some idea of current valuation for your company stage (pre-revenue, prototype, first customers, etc.). Where do you get it? If you are in VentureStart, then we can help you from our network of investors. If not, here are some alternatives.
If you have chosen the right attorney (by right, we mean all else being equal, your attorney should have plenty of current experience with startups raising money or access to expensive databases such as VentureSource), they will be able to give you some idea. Or you can contact other entrepreneurs who have been funded recently and ask them. You might get some idea from such free online databases as ChubbyBrain, CrunchBase, or TradeVibes, although exactly what you need is rarely given.
Angelsoft also publishes the valuation expectation of entrepreneurs that use their software to apply to Angels. You can see it in their learning center funding statistics. Remember this is the entrepreneur expectation! Deals, if done, will be at a substantially lower number, but it does give you a ballpark.
Once you get an idea bump it up some 60% or so to leave you room for negotiation; yes it is a negotiation but you need the “reasonable” starting point. Bottom line: your valuation is what someone will pay for your stock, nothing more!
You can see the video discussion of “let the market decide” by Jason Green of Emergence Capital Partners below and the original is at Standford ecorner.
