If you are raising capital for your startup, read my post “Startup Valuation 101“. But don’t get obsessed with your valuation…
Many entrepreneurs and investors agonize over valuations. After all, valuations impact how much each party earns if the company gets acquired or goes public. But some take it too far. I recently read an insightful blog entry by Paul Graham, successful entrepreneur and founder of business incubator Y Combinator:
“There is no rational way to value an early stage startup. The valuation reflects nothing more than the strength of the company’s bargaining position…Ultimately it doesn’t matter much. When angels make a lot of money from a deal, it’s not because they invested at a valuation of $1.5 million instead of $3 million. It’s because the company was really successful. I can’t emphasize that too much. Don’t get hung up on mechanics or deal terms. What you should spend your time thinking about is whether the company is good. Similarly, founders also should not get hung up on deal terms, but should spend their time thinking about how to make the company good.