Mon, 22 February 2021
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
In negotiating the valuation, the investor can use current market comps or comparables to set the initial price.
By looking at companies in the same sector and stage, one can find the range of valuations.
From there, the investor can raise the valuation based on the values the startup has built already and lower it for the risks remaining.
Investors typically look for 20-25% of the equity for each raise.
The investor can adjust the valuation depending on how much the company is seeking.
Other factors that can change the valuation include recent changes in:
Market growth -- has the market growth changed?
Competition -- has the competitive landscape changed?
Also, by applying the current valuation to the fundraise, the investor can see if it is still in line with the longer-term roadmap of fundraising.
It’s important to ensure the startup doesn’t set the valuation too high on this round as it may prove difficult to raise a follow-on round at the next valuation.
Market comps give the investor a starting point but other factors must be considered.
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