Tomorrow’s Valuation for Today’s Fundraise

I recently saw a pitch deck from a seed stage startup which had a small amount of revenue. The deck claimed a valuation of $50M because a similar company exited at that valuation. I asked about his valuation, and he said he claimed $50M because “that’s what my company will be worth.”    

I reminded him that the example company who exited with a $50M valuation had $15M in revenue at the time of exit. He said, “I’ll have that too.”

I often see entrepreneurs calculating valuations for today's fundraise using tomorrow’s revenue.

Today’s revenue determines today’s valuation. Your business tomorrow determines your valuation tomorrow.

Investors match investments with the current state of the business. As you increase sales, team, product, and IP, your valuation goes up.

The takeaway here is raise only as much as you need to get to the next level. Otherwise, you’ll be raising more funding on a lower valuation, which means you’re giving up more equity than necessary.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today!