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.