How do VC firms value a start-up? – my answer to this question on Quora

http://www.quora.com/How-do-VC-firms-value-a-start-up – With all due respect to financial models, even with mature public companies the models are just a way to rationalize a reality in which you are worth as much as the last person was willing to pay for you (which is why the same company with the same financial results can change in valuation drastically between bubbles and panics). The same reality applies in early stage companies. To start the valuation discussion somewhere two things are taken into account: 1. What were recent valuations of similar start-ups (product, team, revenue) 2. How much money does the company need or what kind of sums does the investor like to invest and what kind of stake does the investor want to have by the end of the round. Often case the simplified process goes like this: 1. Does the investor want to invest in the company? 2. If so, what kind of sums the investor wants/can invest in such stage 3. What type of stake does the investor want to get (after the money and the new shares are issued) and reverse the total round size to accommodate equity needs 4. if more money is needed or more investors are interested, optimize to achieve goals of all investors and rationalize the total sum from the company perspective somehow.. This is really why most rounds for technology companies look so much alike (when looking at deals done in same period of time) even though the companies can have vast different financial needs

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