Focus on Growth
We often get calls from folks that are looking for a valuation on pre-revenue companies. In some edge cases, they really DO need a valuation. Example:
- They’ve issued stock options and need to comply with 409(a)
- They’re in some variety of litigation
- They are buying out a partner
But here’s what you DON’T need a valuation for: raising capital. Or to put a finer edge on it – you do not need a formal valuation to convince an investor what valauation they should place on your company. You may want some input on what a likely range would be for a raise…. but no legitimate investor in the world is going to simply read a valuation report and stroke a check for the number. It’s your job as the Founder to go out there and convince folks.
This was all sparked by an item over on Quartz:
[blockquote]A lot of startups start focusing on something called “valuation.” Let me say it once and for all—valuation is a useless component. It really doesn’t mean anything initially as you are a startup without any assets (real estate, intellectual property, and so on).[/blockquote] The gentleman was discussing startups in India and relative troubles raising capital. But is’s a great point: focus on growth. Focus on establishing a revenue stream. Focus on demonstrating that your company and product and idea all have legs. Investment follows those notions – investment does not follow a formal valuation.
So focus on revenue. Focus on growth in revenues. That’s what drives valuation higher anyway.