I was featured in Emma McGowan’s article on Startups.co called 10 real world startup valuation methods. 10 investors shared ways that they value businesses that they invest in. I think it’s an interesting article, as it shows that there is huge variety in how different investors will look at a business. None are right or wrong, they are all specific theses that individual investors have found to be useful for them. It’s worth checking out.
My contribution to the article is at the end and is borrowed from advice Techstars mentors gave to Devin Baptiste, CEO of GroupRaise, a Magma Partners portfolio company that helps groups book events in restaurants and allows restaurants to compete for the group’s business by donating a percentage of the bill to the charity of the group’s choice. From the article:
As you can see, different people have different methods for figuring out startup valuation. However, the differences are pretty small — a slightly different calculation here; a shift in perspective there.
But many of them take both the human and the monetary elements into consideration when figuring out “value.” Nathan Lustig, Managing Partner at Magma Partners, takes that idea to the next level.
“Obviously valuation matters, but if you find the right partner that you think will actually help you in areas other than just money, think twice about just taking the highest offer,” Lustig says. “Also, read the fine print. Many term sheets include other provisions that make the same valuation offer extremely different.”
So, remember: You need to make both human and monetary considerations. But make sure you never forget the human, even when you’re spending hours and hours on cap tables and calculations.
Because it’s the people who really make your startup what it is.