Sun, Jun 12, 2016
One of the most vexing problems for anyone raising equity-based funding (typically Series Seed and onward) is the question of valuation. I get this question all the time from the founders I work with: “We are going to raise money from investors; how shall we value our company?”
Your typical startup doesn’t have any hard numbers to go by — you are pre-revenue and pre-profit. Mature businesses are typically valued at a multiple of their revenue; with the multiple depending on your industry.
For startups that doesn’t work. Sometimes you can look at comparable funding rounds — company X looks a lot like you and raised $Y million on a $Z million valuation.
Truth be told — determining your valuation is insanely easy and requires quite literally only 4th grade math:
How big of a check do you want — divided by — the ownership percentage — equals — the value of company.
(Michael Dearing from Harrison Metal brought this to my attention.)
It’s truly as simple as that. If you’re raising $3M and you want to give up 30% of your total equity for that investment, your valuation is $7M pre / $10M post money (if you’re unclear about the distinction of pre and post money valuations, read this article).
Simple as that.
With all this being said — good luck with your fundraise!