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.