angel stage valuation

November 20th, 2014 Comments Off on angel stage valuation

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at a networking event recently a startup founder walked up to me and in a very shy manner asked if silicon gardens knows how to set valuation of his company. this burning question was preventing him from starting to fundraise, and with all honesty, it’s a great question that founders for unknown reasons don’t want to ask out loud.

my answer roughly consisted of three parts:

  • if you are pitching angels, that means your company is very early, probably doesn’t have market validations and years of financials that you need if you want scientific fair valuation.
  • because of that, you need to ask the angels / investors, how they can help you achieving your next milestone, which could be anything – develop prototype, go to market, expand to new market… and the help can mean many things, besides the capital – expertise, network, operations,…
  • then you ask yourself how much is that help worth to you, and compare with what the angel expects. more often than not, you realize that the deal is in your favor
  • keep in mind that there are some thresholds – minimum stake to make investor feel involved in the company is often 5%, max that you might want to consider is 30%, otherwise you’ll have problems with cap table in future rounds of financing.

very basic question, but important nonetheless. founders, don’t be afraid to ask basic questions. ever.

anything to add to the answer dear readers?

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