Startup Market Sentiment & Valuations
One of the toughest aspect of any startup is understanding how to figure out, defend and intelligently articulate the valuation of a company. It is no secret that many valuations tend to be based on market sentiment for similar stage deals within their respective sectors. What many entrepreneurs struggle with is understanding how to get a pulse on VC sentiment and the startup funding landscape. Most people utilize tools like Crunchbase by finding information on amounts raised but what about valuations and deal terms?
It begins with data. There are two types - qualitative and quantitative.
We recommend focusing on the qualitative aspect, it introduces an edge over other entrepreneurs and helps you understand your specific niche much better. The single greatest place to find information around what your valuation should be is from:
1) Investors in your respective sector
2) Corporations in your sector that focus on innovation and may or may not have a fund for early-stage investments
3) Other founders which may not necessarily be in your sector but are in your stage of funding
Investors and other founders are generally easy to access and therefore requires minimal effort. Remember to carry conversations around valuations and deal terms. Focusing on large corporations is important. Why? Many M&A cycles that provide exits for investors and founders are driven by large corporations. Having the understanding of what these companies are looking for is immensely valuable. Find out what innovation, initiatives and mandates the corporations in your sector are focused on and you’ve got a great piece to add to the valuation narrative.
Quantitative data. This has to do with the ‘art’ part of business - taking many data points and making a reasonable, educated assumption around market sentiment. Firstly, read quarterly and annual VC reports provided by companies like PitchBook, CBInsights, PwC and KPMG. Here are a few of our favorite tools that aren’t very well known:
The KPMG Startups Trend Index is a wealth of information to help you understand what is going on in the startup ecosystem on a global scale. Their amazing user interface makes it easy to identify trends by internet search activity, news articles, buzz by sector. For example, you can look at how Consumer Goods as a sector are trending.
The PWC Technology Sector database is full of very useful data on deal amounts, volumes and sectors. If you want to know what Series B startups in Healthcare from Boston are doing in terms of total deals and amounts - that data is only a few clicks away.
Angelist has a very basic but detailed tool around valuations that many people are not familiar with. This is a great tool for the earl-stage companies (seed and A rounds) but it offers a lot of variables to give you an idea of what is going on by sector, geography, year & quarter, markets and even incubators and universities.
Just like understanding public market, economies of countries and mega-transactions in M&A, there is a wealth of information available for startups. However, we think using all the resources available should give you an idea of the overall direction of the market, what’s hot and help you pin point market timing. Again, this is ‘art’ not ‘science’.
Akrasia Capital, LLC is in no way affiliated with Crunchbase, AngelList, PwC, KPMG, CBInisghts or Pitchbook