Scott Lenet
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3 lies VCs tell ourselves about startup valuations
Is there a creed in venture capital?
Venture capitalists frequently say that valuing startups is “more art than science.” If that’s true, then it’s absurdist art, because most seed-stage businesses have no value.
In fact, seed-stage startups — companies that have not yet released a product, regardless of how many rounds they’ve raised — are probably worth less than zero using any rational valuation methodology. The only certainty at this stage is that the startup will keep losing more money until a product is released, at which point it’s possible that revenue may be generated. The chances of going out of business are high.
It’s not that much better for early-stage startups, which again, are not defined by rounds like Series A or Series B, but by how much business progress they’ve made. Once a seed-stage company has released a working product, the startup has reduced one of the two major risks facing the business: commercialization. At this stage, now a company must prove the new product or service can be turned into a scalable business.
Like seed-stage startups, early-stage companies are still very fragile …
