Source | calacanis.com | Jason Calacanis
Early-stage valuations for startups are hard to understand because typically there is very little traction or data to go on in the first year or two of a startup.
Startup valuations are not science, but they’re not magic either. It’s a bit of alchemy, combined with bizarre marketplace dynamics like famous founders getting 3x the price for half the traction, or Y Combinator hosting a gigantic demo day in order to create FOMO with novice investors who are explicitly told not to think things through and just cut a big check (literally, that’s their bad advice to investors).
The chart above, a work in progress, is called “The Valuation vs. Traction Matrix” and it pivots on two variables: traction (aka “stage”) vs. valuation.
I started the valuation at the basic valuation we tend to see in technology startups, which is $1-2m and go up to the eye-popping $12m (which is actually not the peak, just the highest end of normal).