How do you know if your startup valuation is too high?

Bear in mind that until a business gets fairly sizeable — there are no great comparables, no great valuation metrics. Once you hit $10m, $20m in revenues, you can start to use public comps as a reasonable way to value a “startup”. But in the early days — none of the valuations make sense. You want a $4.7m post money. But really, if you are pre-revenue, how can you even be worth $100k? Or $1m? Let alone $4,700,000 — already? My first startup had about $50m of R&D behind it, $6m in customer commits, and our pre-money valuation was $4m. My second had barely a prototype, and its pre-money valuation was $6m. I mean — why? The reason is context. Early stage investments are around context. $1m is a common pre-money valuation for many tech startups outside of the Bay Area at the early seed stage. One simple reason investors typically look to invest $X00,000 for about 30% of the company. By contrast, YC is the most successful accelerator. That creates a lot of context. Hot YC startups these days tend to get $7m pre, and the best ones $12m pre. There is no real reason. Other than — context. That’s what the last ones got. So … If the market is telling you the valuation is too high. It is. Either go find another market that may tell you differently. Or adjust. The reality is, your pre-seed, pre-revenue startup is worth nothing today — except as an option on potential future value. Valuing options is really, really tough. View original question on quora

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