Does valuation matter at early stages?
We always tend to say valuation is a vanity metric.
While the right metric is in fact an equation: Amount of cash + Valuation + Investor smartness + Terms
When fundraising entrepreneurs tend to forget two things:
1) Roughly 90% of startups fail
2) As an individual, there is little difference in your life, if your net worth is $20m or $40 or $100m.
But there is a massive difference between having $0 or $20m+
So your only objective as a founder is to ensure your startup sustainability. The best way to achieve this is to surround yourself with talented people as committed as you to your startup success and it also includes your investors.
Never forget that to make it personally your startup needs to make it first.
It seems trivial but we see too many entrepreneurs completely discounting the potential added value of investors, considering all money equal and therefore focusing only on valuation.
You are building a company and a team. Investors are part of that team. If you have brilliant and well connected angel investors your chance of success dramatically increases.
So, as you have to recruit amazing team members, it’s part of the founders’ duties to also assemble game changing angel investors.
Identify them and hunt them. All startups we have seen with great business angels and seed investors have dramatically increased their success rate.
Once again a great round is the right balance between amount of cash, valuation, investor smartness and terms.
One example, Aaron Levie, Box’s founder and CEO.
I quote him “don’t be too anxious about valuations before Demo Day, our angel round was $80K on $240K pre”.
Box is now IPO’d and valued $2.7bn
Building a startup is a fantastic journey but also a long and risky road. Early rounds are here to help you build solid foundations for your business. It is way too early to pull out your calculator to estimate your future net worth.
Have a good week,