Startup Valuation: How to Calculate It - Startups 101
Early Stage Valuation - Intro (00:00:00)
- Investor Finder service offers weekly investor matches for startups
- Valuation is complex and varies across friends & family, seed, or Series A rounds
- Friends & family rounds typically see investments from $10k to $200k with valuations from $500k to $1m
Early Stage Valuation - Friends and family investors (00:01:07) and Angel/seed round (00:02:40)
- Friends & family often invest due to personal connections, with valuations at $500k to $1m
- Risk is high at this stage, leading to low valuations
- Convertible notes or SAFEs are common to delay valuation discussions
- Angel investors may invest $50k to $2m, typically for 10%-20% equity at valuations between $1m to $3m
- Convertible notes or SAFEs often used during angel/seed rounds
Early Stage Valuation - Convertible Notes (00:03:39) and Cap and discount rate (00:04:52)
- Convertible notes turn into equity at a "qualified financing" round
- Discount rates, usually around 20%, reward early investors
- Valuation caps set maximum valuations for the next equity round
- Valuation often inferred from the cap when raising funds through convertible notes
Early Stage Valuation - SAFE (00:05:37) and Valuation (00:06:11)
- SAFEs are founder-friendly with no interest, maturity date, or repayment
- Include discount rates and valuation caps
- Choice between convertible notes and SAFEs can impact startup valuation and risk
Early Stage Valuation - A few things to consider (00:07:00) and Founder Vesting (00:08:30)
Stock option pool replenishment can dilute founders or all shareholders
Extra rights or restrictions, like investor approvals for large expenses, can affect control
Liquidation preferences can be a critical term, with 1x being standard
Lower valuations may be acceptable with better terms
Founder vesting ensures founders stay engaged post-investment
Terms can get complex, requiring experienced legal and financial advisors
As startups approach Series A, valuations become more formulaic based on the amount being raised