I often get asked by startup founders, most of them with little to no business background on how to holistically think about capital raising and startup valuation during the evolution of their venture. Many struggle with being under-prepared for investor meetings and unable to defensibly quantify their venture’s worth (or valuation) to a an interested Venture Capital firm (VC). Some have paid a heavy price for this lack of know-how and prep. One founder I met a year ago complained about having only 11% equity in his own company (down from 85% post initial funding) due to poor capital raising strategy and consistently undervaluing his startup, thereby allowing every new investor to sharply dilute the founder’s stake.
You can’t let limited entrepreneurial finance knowledge undermine the unbelievable effort and energy you have put into your startup.
So let’s start with the fundamentals. In this article we will cover the basics of startup valuation going over stages of financing, how VCs measure themselves, how to value your startup and finally how to maximize your startup’s valuation.