Startup market valuations (early stage)

How are early-stage founders estimating their market valuations?

Sites like Crunchbase, DealRoom and Pitchbook report recent valuations from news and PR. There valuations are generally averages.

What are the founder valuation steps? 1. Track top k relevant startup competition. 2. Approximate around competitors? Guess based on rule of thumb? Ask advisors? Ask existing investors? Guess?

Hi. It’s difficult to answer this question objectively, however I will offer my approach as an investor (please don’t shoot me for trying to answer the question).

Priorities and weights: 1. (.25) Team (commitment, experience and expertise)

2. (.25) Market (size, accessibility, approach)

3. (.15) Product status (a. Concept b. Lab prototype c. Demonstrable prototype (alpha) d. Testable proto-product (beta) e. Market-ready (MVP)

4. (.15) Traction (a. No users b. 10-100 users/customers and/or award(s) c. 100-1000 users/customers d. More than 1000 users/customers

5. (.1) Revenue (a. No revenue b. Grant, SBIR or other c. Product revenue $250k

6. (.1) Gut instinct

A = a multiple on revenue (depends on industry)

0-12 months: $0 to $2.5 million. ($2.5MM * weight)

12-18 months: $0 to ~$3.5MM (A + $2.5MM * weight)

18-24 months: $0 to ~$5MM (A + $3.5MM * weight)

24-36 months: $0 to ~$10MM (A + $5MM * weight)

This is just my rough approach, and it’s not always appropriate. Based on some experience and where I invest, I would say it probably applies for most of the US other than Sili Valley or other Western US startup hubs where investors are more “optimistic.”