Pre-Seed Valuation; Is It Fake?

Originally posted on https://www.scale-vc.com/post/preseed-valuation

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In the last few years, it seemed like business valuation was a dying career for tech companies because no fundamentals or theories were being used. That said, at the Pre-Seed stage (i.e., pre-revenue or early traction), startups cannot fundamentally use the traditional valuation methods later-stage startups employ. Instead, valuations are based on the range within the market values of other pre-seed-stage startups. Investors generally communicate with each other on their valuation sentiment and leverage market comps through AngelList’s startup valuation tracker, PitchBook data and valuation reports, Carta data, or CBInsights valuation reports — although the market comps are somewhat lagging.

Although somewhat sheltered from market cycles, early-stage valuations are still affected by downturns, as seen in Carta’s Q1 2023 Private Markets report. The range and median of the range are ever-changing, which can create confusion for founders when going to the market. It’s also confusing when a founder receives a 409A valuation to set a price for their options pool that is 75% lower than that range. Founders need guidance that…