20 Your startup’s valuation: Up, up, up (hopefully)

The valuation of your startup is a very important concept to you, to your employees, to your existing investors, and to new investors. Until you are raising money or are close to an exit, you don’t want to obsess over this—along the way, you have many more critical things to obsess over—but you do want to keep an eye on it. I will show you how it is not a factor you have to accept as is—there are things under your control that can directly improve your valuation.

20.1 Determining a startup’s valuation

There are essentially three ways to determine a valuation for your startup. The first is to have an independent appraiser do a 409A valuation. The second is for professional investors who are considering leading a round in your next financing to use their own process to set the price they are willing to pay for your shares. The third, which happens as an exit approaches, is for investment bankers to perform the valuation. Let’s consider the 409A path first.

20.1.1 Valuation via a 409A

20.1.2 Valuation via a priced round

20.1.3 Valuation via an exit

20.2 Why valuation matters

20.2.1 Valuation and dilution explained

20.2.2 Valuation changes: Slow and steady vs. jumps

20.3 The moral of this anecdote