Current Pre-money Valuations of Pre-revenue Companies

April 11 2011 2 Commented

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)
  Pre-money
Angel Group Valuation*
Tech Coast Angels $1.25
Phenomenelle Angels $1.30
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
RAIN Funds $1.65
Ohio TechAngels $1.75
Band of Angels $1.75
Life Science Angels $2.00
Alliance of Angels $2.10
CommonAngels $2.70
mean   $1.67
mode   $1.50
  * 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.

2 Responses to “Current Pre-money Valuations of Pre-revenue Companies”

  1. Ty Danco says:

    A great service, Bill, and I applaud the effort. It still just smells at least 10-20% low to me, just based on anecdotal evidence from the last quarter. But I will be delighted to learn that other angels are toeing the mark. I just feel the higher the Dow, the higher the irrational exuberance of angels as well.

    PS–great session on Valuations at ACA

  2. admin says:

    Hi Ty – Nice to see you in Boston. As you saw during our roundtable, startup valuations vary substantially around the country and the New England region seems to support the highest pre-money valuations for pre-revenues companies. This survey was taken last summer and pricing may, indeed, be up 10-20% in New England by now. Frankly, the variation within the study is much greater than 20%. Regarding the Dow, I don’t believe there is a relationship. I believe pricing of early stage deals is more related to the competitive environment and size of the rounds we angels assemble. Thanks for your comments, Bill