Martin Zwilling | AlleyWatch

As an entrepreneur looking for professional investors, one of the quickest ways to lose credibility and get rejected is to start with a ridiculously high pre-money valuation.

I see it happen often in my angel investment group, and you can see it happen almost every week on the “Shark Tank.” It is like trying to sell a home still being built at next year’s dream market price.

Equally bad is professing no valuation estimate at all, asking investors to “make me an offer.”

You look like a chump, and probably will not like their low-ball response.

Investors know that valuations at startup early stages are negotiable, but they do expect that smart entrepreneurs understand the top 3 elements of a startupvaluation would include the following.

1. First priority is real revenue, customers and contracts. If you have a proven business model with some sales, it is credible to apply a multiplier of 5-to-10 times this number for the first element of valuation.

Thus, $100,000 of gross revenue in the last 12 months might be extrapolated to $500,000 to $1 million in valuation. Future revenue projections are not relevant at the pre-revenue stage.

Continue reading …

Source: A 5 Minute Tutorial on How to Value Your Startup | VentureCanvas


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