Atlanta Startup Valuations

I’ve read a number of executive summaries over the years and most will include a section on fundraising, including the amount of funding desired, and for a smaller percentage, the desired valuation. Naturally, the expected valuations are all over the place, and don’t usually designate whether it is the pre or post-money valuation. Unfortunately, the vast majority of desired valuations are much higher than the going rate, especially in Atlanta. There aren’t any hard and fast rules but here’s what I’ve seen over the past few years:

  • Angel deals for pre-revenue companies with a beta product are typically at a $500,000 post-money valuation (e.g. $100k would be invested and the angels would own 20%)
  • If the entrepreneur or team has been successful before building a multi-million dollar company, expect a $1.5 – $2 million pre-money valuation
  • Revenue generating startups should take their trailing twelve months revenue and multiple it by a comparable public market multiple (the going rate for a similar publicly traded company), less a discount of 25% – 50% for being private (no liquidity or market for shares)

I recommend that startups use this as a guide when thinking about valuations and raising money.

2 thoughts on “Atlanta Startup Valuations

  1. David —

    Good post. For the most part, totally agree. In Atlanta where we don’t see the enormous valuations of Silicon Valley, the basic guidelines you lay out work.

    In talking to John May, the head of the AVCA, he basically boils it down to this:

    90% of deals in the US fall into an angel or group of angels investing up to $1MM for between 10-40% of the company, regardless of revenue, run rate, etc. Not entirely true, but the reality according to the presentation I saw was that no matter the formula, the block box, the analysis, the result will be the same — 90% of deals will be in the $1MM or less range for between 10-40% of the company.

    I would also add that not only is valuation important but so is the actual capital structure. If you have taken $2.5MM and think you have a $10MM pre-money with minimal revenue, that deal isn’t going to fly. As we say in Kansas where I am from, that dog don’t hunt.

    Thanks for doing the daily posts, they are always good…

    Cheers,

    J

    1. Thanks Jamie for the great comment. I agree that the capital structure is critically important and I’d recommend reading VentureHacks.com to learn more about the fundraising process and details.

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