![]() ![]() Any lower than 10% and its stingy to investors and any higher than 20% and founders risk owning inconsequential stakes if the startup ends up raising multiple rounds in the future. That is, you will be giving away this equity to investors in exchange for the funding. Most startup funding rounds involve dilution of ~10–20%. Let’s say you decide you need $2 million to get you from where you are to Series A milestones. SaaS funding napkin courtesy Christopher Janz Once you know what your metrics should be, then you figure out from your model what resources you need to achieve them. $1m ARR is considered good enough for Series A fundraise (among other metrics). If you’re raising a Seed round for a SaaS startup, your funding should take you to ~$1 million ARR (annual recurring revenue) over the next 12–24 months. For simplicity, this should be the metrics required to raise your next fundraising round. The first part of this step is identifying what your next milestone should be. Here are 5️⃣ steps to nailing your valuation relatively quickly and effortlessly 1. For angel / friends & family rounds without lead investors, the valuation conversation is repeated for each investor but gets easier once at least one investor has agreed to invest on the proposed terms. In rounds with a Lead Investor, the lead negotiates the term sheet and once agreed all other investors invest on the same terms. Your valuation is basically a figure agreed between investor and founder. The value of a financial model to investors is scarcely the accuracy of the numbers (they are BS) but the thought process and rigour the founders have displayed in generating their financial projections.Īlso, paying an advisor at this stage is unnecessarily complicating a simple exercise and a waste of money. Conversely, there is no baseline performance on which projections are made for early-stage startups. For established companies, historical financial performance can be referred to as a baseline on which projections are made. DCF analysis relies on critical assumptions such as future free cash flow, discount rate, terminal value and growth rates. ![]() We disagree on both points.įor an early-stage startup (pre-seed to seed stage), a DCF is not at all an appropriate method for valuing the company. When I asked the tech world’s newest flashy tool ChatGPT “how do I value my early stage startup” its response was basically (i) use discounted cash flow analysis (DCF) and (ii) it’s so complex, get an advisor. On the other end of the spectrum, there’s also a risk of worrying TOO much about valuation. Set your valuation too low and you suffer too much dilution. Set it too high and investors pass on participating in your round. Often from the very start of their startup journey, founders worry a lot about their valuation and for good reason. Valuation of early stage startups is a black box – like almost everything else in venture financing. DCF is a No No! You Also Don’t Need to Pay Thousands to Advisors ![]()
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