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Investor Connect Podcast

Investor Connect is for investors interested in learning more about investing in startup and growth stage companies. Experienced investors share their experiences and advice with those who are considering an investment into startups and growth companies. It includes a podcast series of interviews with investors to inform others about the process of funding startups as well as a resource list and a discussion board.  

Topics include sourcing, analyzing, and researching companies. Other topics include valuations, terms Sheets, board of directors, board of advisors, due diligence, syndicates, venture capital, angels, angel networks, family offices, crowdfunding, exits, and more.

Investor Connect is a community program. We welcome your suggestions for speakers and topics which you can send to us through the Contact page. No registration is required to use the resources.  Discussion boards are available to post and answer questions about startups and growth company investing through which registration is required.

Investor Connect is a program under the Texas Open Angel Network which is a 501(c3) non-profit dedicated to the education around startup funding.

Disclaimer: Hall T. Martin is the Director of Investor Connect which is dedicated to the education of investors for early stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.

May 30, 2022

5X Rule of Post Money-Valuation

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

As an investor reviewing deals, you’ll hear a wide range of startups with various fundraises and pre-money valuations.  

So, how can you screen the deals to find those who have ‘reasonable’ valuations?

Try the 5X rule.

The 5X rule says to take the post-money valuation and multiply times 5. If the company sells for that price, then the investors will do well.  

If you don’t think the company will be able to sell for that price, then the company is overvalued and will most likely not provide a return to the investor.

Entrepreneurs usually quote their fundraise target and their pre-money valuation. 

To find the post-money valuation, add the fundraise amount to the pre-money valuation.

Here’s a recent example. The company is raising $2M on a pre-money valuation of $10M yielding a $12M post-money.  

By multiplying 5*12, we see a target exit value of $60M. Most companies in the space were exiting at $25M to $30M, so this one was overvalued.

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.

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