Pitching Funding Rounds

Sep 10, 2024

Startup valuations are notoriously difficult to estimate in the early stages. Naturally, investors and founders seek reference points to convince themselves they're making sound decisions when investing in a company. These reference points often include market benchmarks for the type of round a company is pursuing or referencing past valuations. However, given the inherent impossibility of rationally estimating a company's true value amidst the uncertainty of early stages, I believe these heuristics offer little value.

Peter Thiel presents an insightful perspective on this matter. He advises against pitching rounds based on a premium over past valuations, instead advocating for framing them as a discount on future value.

You should never approach investor conversations from the angle that your last round's valuation was Y, and now, with all your progress, you're worth 3-6 times that amount.

Instead, explain why your company will be worth significantly more in the future, framing the current round as a discount to that future value.

This approach not only facilitates finding fair valuations but also aligns with how investors should think about company value. After all, a company's worth is merely the discounted value of all future cash flows it will generate. Therefore, this perspective proves most useful when pitching a round.