Current Pre-money Valuations of Pre-revenue Companies
I just returned from the 2011 Angel Capital Association Summit in Boston, April 4-6, 2011. It was attended by over 500 angels and associates, including about 60 international angel leaders. It was an excellent meeting – the best yet of the half-dozen or so US ACA angel Summits to date.
On Wednesday afternoon, I was fortunate to be asked to facilitate a roundtable discussion entitled: “Valuation of Pre-Revenue Companies and Irrational Exuberance” attended by 50 or so delegates. We reviewed the following chart based on an informal survey I conducted last summer:
|2010 Angel Valuation Survey|
|(Pre-money Valuation of Pre-revenue Companies)|
|Tech Coast Angels||$1.25|
|New York Angels||$1.30|
|Frontier Angel Fund||$1.40|
|DC Dinner Clubs||$1.50|
|Vancouver Angel Network||$1.50|
|Midwest Groups (Okabe)||$1.50|
|Band of Angels||$1.75|
|Life Science Angels||$2.00|
|Alliance of Angels||$2.10|
|* in Millions of US Dollars|
The key outcomes of our discussions were:
- About 25% of the audience were from Boston. They agreed with the survey results that seed/startup valuations in the Boston area remain higher than elsewhere, as published above.
- A minority of those in the room used convertible debt for seed/startup rounds. Most agreed that this was not best practice, unless there was a reasonable valuation cap negotiated upfront.
- There was a consensus in the room that entrepreneurs do, indeed, suffer from irrational exuberance regarding valuation. Several groups reported that they participate in local entrepreneur training which includes valuation math. All agreed that entrepreneur education regarding valuation was important in the future.
- Non-US delegates agreed that the problems were similar in their regions and that education was the solution.
All agreed that this was a very productive roundtable discussion.