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What is your valuation at the last round? – Not as tricky as you might think
Here’s what they mean…
In all honesty, “What is your valuation at the last round?” is a straight-up question that you can answer directly.
They aren’t just interested in knowing the number. They are doing VC math. Each valuation round should be at least 2x the one before. They will triangulate the traction you have since the last round and figure out if your valuation increase or potential valuation makes sense.
The only thing that you need to bear in mind is if there are obviously peculiar things happening. For example, if your 1st round was $1 million and you are raising at a pre of $20 million, then that is a 20x increase. Does your traction and change of circumstances justify such an increase? You will have to be prepared to answer this.
On the other hand, if you raised at $5 million Pre before and are raising at $6m now, then something has been going wrong, right? Your valuation should be higher if you are a high growth, sexy opportunity.
If you know your growth is not great then you might want to call your round a seed extension, second seed etc as opposed to a series-a. Seed is a phase these days.
If you are ticking along nicely, this is a simple answer.
What you need to say
“$5m pre. We raised $2 million, so $7 million post. That was 12 months ago. We are raising $10 million now. In 12 months we have 4x our revenue and dramatically improved churn to get to negative net churn through a smart expansion revenue strategy.”
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Also published on Medium.