
Seed Rounds: How to Pick a Valuation - guiseppecalzone
http://josephwalla.com/seed-rounds-how-to-pick-a-valuation
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lpolovets
I think this is a great post. A few months ago, I wrote a post that I think is
complimentary. I focused more on figuring out how much to raise, and working
backwards from that number. [http://codingvc.com/an-algorithm-for-seed-round-
valuations](http://codingvc.com/an-algorithm-for-seed-round-valuations)

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sparkzilla
Don't most seed rounds use convertible notes? We use Y Combinator's SAFE Docs
([https://www.ycombinator.com/documents/](https://www.ycombinator.com/documents/))
so the issue of valuation can be delayed until the company has better metrics
and can be value properly, while still giving upside to the note holder.

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michaelochurch
_20% MoM growth is the gold standard - the longer and more consistent you hit
high MoM growth, the better. Even a product an investor doesn’t fully
understand - for example, an app that self-destructs the photos it shares -
starts to look really good with high MoM growth._

This is part of why I find the (light tech) startup world to be scammy and
light on substance. 20% monthly growth is 792% annual growth. Would you really
be inclined to put money in a stock fund that said that it was targeting _over
700 percent_ annual growth? Or would you think there was something funny and
unsustainable going on?

Quality has gone out the window and it's all about blowing up bullshit metrics
because that's all these short-attention-span man-child types can deal with.
Rather than thinking about _what the fuck we 're growing_ it's just growth,
growth, growth. Fuck that one-dimensional mindless noise. What are you
building? Not all "growth" is desirable.

Technology can _easily_ produce 20 to 40 percent annual growth on a large
number of economic problems, and even 10-20% once they achieve scale (unlike
"viral" phenomena that, unpredictably, phase-change into negative growth).
This can be done with a low level of risk. So why isn't there any attention
given to companies that, given a couple years of salaries for a few
technically competent founders, could reliably and sustainably deliver 20-40%
growth over the next couple of decades? Meaningful technological growth rarely
comes out of get-big-or-die gambits. The moon landing wasn't powered by a
"move fast and break things" attitude. It comes from the humbler 30% annual
growth, one year after another after another. Things take time.

~~~
nostrademons
There's a very different dynamic going on in most tech markets. A customer's
purchasing decision is binary (either buy this product or that product), there
are few if any geographic or physical barriers to adoption, and most markets
have only a handful of incumbents.

That means that when your product becomes appreciably better than the
substitutes that are already out there, there are no throttles to growth other
than what you put in place yourself. Customers switch en-masse from one
product to another, as soon as they hear about it, and don't stop switching
until the old product is dead and the new one is a giant company.

That's why it takes a lot of work to get to product/market fit (which is
nothing more or less than your product being noticeably better than all
existing substitutes in the market), but once you have it the company will
take off like a rocketship, and investors are willing to pay valuations in the
billions. Because all you need to do then is maintain your lead, which is a
lot easier when you have billions in capital coming in. The growth doesn't
stop until you've saturated the market, which is why the other number
investors care about is Total Addressable Market.

This is also why companies like Google and Facebook spend thousands of
engineer hours on incremental gains that seem trivial. They want to put as
much distance between themselves and any potential competitors as possible, so
that nobody bothers trying or they run out of money long before they get
close.

Far from quality going out the window, these stratospheric growth rates are
proxies for quality - at least as measured by the consumer. What an investor
is looking for is whether your company is, in the eyes of many other people,
producing enough value that they choose to use it.

