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Ask HN: how to determine angel round valuation?

6 points by fhe ↗ HN
Your thoughts/experiences on this are appreciated.

We are a startup talking to some angel investors/early stage VC's. Our startup has been in existence for 8 months. So far it's bootstrapped. We've grown from 2 people to 10 people. We provide a web-based service to online businesses. We have half a dozen large customers and there are a few more in the pipeline. We are breaking even, so we don't have to raise fund, but it will accelerate our growth greatly. The amount we are looking for is between half to 1 million dollars.

We don't have a good sense of what's a reasonable valuation, or even how to think about it. A P/E ratio calculation just doesn't make sense at this stage. We appreciate your thoughts on this. Thanks.

5 comments

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patio11
Much like "what is my fair wage?", this depends on negotiations, right? If you jointly decide to value the round at $20 million, then $20 million was the valuation. How about you ask them for a number, and then you say "That is too low, we're already break even so we don't really need your money, I suppose we might accept it if you were prepared to go up to $BIGGER NUMBER?"
staunch
Whatever makes you and your investor happy after the deal is done. If it was me I would expect to give up 10% - 30% depending on the size of the investment and who's making it.

Pay a lot more attention to issues of control and the other deal terms. They will help or hurt you a lot more than having a little more or less stock.

joshu
If you can send me details (contact info is in my profile) I can give you a rough estimate. I'm a pretty active silicon valley angel so I know what price deals are happening at lately.

If the investor is a fund, they will want to get 10-25% (at least) of the company for whatever price they invest, if they are taking a board seat.

You also can price the round later via a convertible note. They may balk at this, some investors do not like them.

But, seriously - 10 people in eight months? Why are you raising capital? It sounds like you are rocking.

photon_off
I'm far from an expert on the topic, but couldn't convertible debt be an option?
fhe
thanks for the comments. i was really hoping someone would give some kind of framework to think about valuation. things like whatever makes me happy or try to get as high valuation as possible are not so instructive. i know valuation at this stage is more art than science, but i hope there's some structured way to come up within a reasonable ballpark.