This post is by Jason Calacanis from Jason Calacanis
Early-stage valuations for startups are hard to understand because typically there is very little traction or data to go on in the first year or two of a startup.
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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, or Y Combinator hosting a gigantic demo day in order to create FOMO with novice investors who are explicitly told not to think things through and just cut a big check (literally, that’s their bad advice to investors).
The chart above, a work in progress, is called “The Valuation vs. Traction Matrix” and it pivots on two variables: traction (aka “stage”) vs. valuation.
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.
When you get to paid pilots or revenue, then you are most likely to get seed funds and syndicates involved, after which the VCs start buzzing around. VCs invest, on average, when you have $2-3m in revenue these days (they might (Read more...)