AGUILA, PAULO TIMOTHY

III – BSA
Valuation of Early Stage Startups (Part 1) - Overview for Investors | Crowdwise Academy (315)

-What is valuation?
-Why is valuation important? Is it?
-Valuation Optimization Fallacy
-Valuation vs. Startup Stage
-Pre-money vs. Post-money
-Traction vs. Valuation matrix (from Jason Calacanis)

"When someone buys shares in a company, that implicitly establishes a value for it. If someone pays
$20,000 for 10% of a company, the company is in theory worth $200,000. I say "in theory" because in
early stage investing, valuations are voodoo. As a company gets more established, its valuation gets
closer to an actual market value. But in a newly founded startup, the valuation number is just an artifact
of the respective contributions of everyone involved." - Paul Graham, Co-Founder of Y-Combinator

Valuation is the present market value of a given startup as agreed upon by founders and investors.

Similar to "market cap" in the public markets (more potential for inefficiencies due to limited
supply/demand). Depends on:
•The founders and team
•Intellectual property
•Customers and current traction/sales
•Projected future revenues
•Risks
•Supply and demand

"It's not what you buy that determines your results, it's what you pay for it. And what you pay - the
security's price and its relationship to intrinsic value - is determined by investor psychology and the
resulting behavior." -Howard Marks in MAstering the Market Cycle

Finding a "unicorn" isn't the real goal. For the same outcome, investing earlier and at a lower valuation
results to higher gains (but higher risks)

While valuation is important, what's more important is ensuring that you don't miss being a part of the
potential home run investments.

The biggest mistake early-stage investors can make is optimizing for valuation instead of optimizing for
home run potential

Pre-Money vs. Post-Money Valuation

1. Pre-Money Valuation
a. The valuation of a business before accounting for money in the current round
2. Post-Money Valuation
a. The valuation of a business including the total amount of capital being raised in the current round.

Pre-Money Valuation + Total Round Raise = Post-Money Valuation

Pre vs Post - what's the difference?
Neither one is "good" nor "bad" - just understand what is being offered so you can calculate your
percent ownership correctly

Investor's ownership depends on post-money valuation

Valuation (Shark Tank Math)

How to calculate the implied valuation, if you know the:
•Amount the startup is raising, and
•Percent of the business they are selling

Estimating Undisclosed Valuations

Startups will often raise certain amounts of capital at an "undisclosed valuation"