
Why Valuations Are Getting Too High for Seed Stage Investors - Cmccann7
http://mashable.com/2011/07/20/seed-stage-valuation/
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pg
He shouldn't use that $22 million average value for these calculations. It's
based on current values of often quite young startups, not exit values. As I
say in the post, "unless the top VC funds as a whole lose money, this number
should be a lower bound on actual exit valuations."

His math also assumes you invest randomly in YC startups. Any angel who was
paying attention ought to be able to narrow the field a lot, which would
justify proportionally higher valuations.

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chrisyeh
Paul's right that the $22 million average may end up being conservative. All
it takes is for another round to increase the Dropbox valuation, which could
have a significant impact on the total.

But I think it quite likely that many VCs will end up losing a lot of money on
recent investments.

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rdl
What I don't understand is why people complain about valuations being too
high/out of line with what they want, and just complain (or try to pick only
"cheap" deals), vs. increasing the value they add to transactions.

YC adds huge value to transactions, and gets deal terms which, from any non-
value-add investor, would be extortionate.

C and D list VCs add no value (and may actively destroy it), and a lot of them
aren't even allowed into top deals. For other deals, they sometimes get to
fill out a round ("fill out" a round where you've raised $800k on a goal of
"raising $1mm round" but actually wanted to and end up raising $2mm").

If I were investing, I'd rather either build my personal network (and thus get
into deals earlier and on more favorable terms; a few months early on a seed
round might mean you actually do get to invest in the next PayPal or Google),
or get really well known in a niche (Big Data, online payments, etc.) to
concentrate value-add. Then, you get access to the hottest deals in that
space, where the valuation is less critical, AND you might get in earlier (and
thus get better terms). Or, if you believe the seed/A valuations are too
close, you might get to invest $50-100k right before the A round, thus not
having much risk.

It seems like the smaller angels are much more focused on the cost to get into
deals, whereas the best investors are more focused on making sure they get
access to the top 1% of deals. Paying 50% more on every investment you make is
still better than missing the 1-5% of investments which make all your money.

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sillybee
Chris is a nice guy, but he's extremely price sensitive. He likes to invest
$10k in companies valued at less than $3m pre, but only after many meetings.

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chrisyeh
Sillybee is absolutely right--I warn everyone that I am valuation sensitive,
and that I'm not as aggressive as other angels.

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iamelgringo
_Today, the same conditions no longer apply. Pre-product startups with novice
founders are getting $8 million pre-money valuations._

With all due respect, Chis. But, if you're looking at pre-product startups
asking for a $8M pre, you're looking in the wrong places for startups.

Those valuations are the exception, not that rule. And, the problem with
publishing those figures, is that entrepreneurs scratch their heads and wonder
why they aren't getting those valuations.

Those valuations only happen for a handful of companies at the top of YC
graduating classes, where investor appetite has been deliberately whipped into
a frenzy.

There are plenty of other quality startups in the Valley with solid products
and revenue that have to pitch 170 times to raise $1M:
<http://www.brendanbaker.co/2011/04/anatomyofseed/>

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johnrob
It seems like angel investing really only makes sense these days if you do it
as option on future investment. Given how valuations are avoided until Series
A, the angels end up buying at only a modest discount off the VC price.

I recently saw a small angel try to invest 50k in a startup, only to back out
once he realized how much equity it would end up getting him. A larger angel
could always add additional money during the Series A to end up with a larger
chunk of the then more promising company.

~~~
joshu
Why would an angel care how much of the company he gets? The only thing that
matters is absolute return.

Btw on hot deals (the kind you would want to take your prorata on) you are
frequently asked not to take it so the new investor can get the percentage
they need. So you can't "always" get more ownership.

