A valuation you can defend

Most founders I speak with can tell me their valuation. Far fewer can tell me how they got there. The usual answer is a comparable someone mentioned, a figure from a friend's round, or the number that makes the dilution feel acceptable.

That is fine until the first partner asks, "How did you arrive at that?" At that point the conversation is no longer about your business. It is about whether you understand how investors think, and a weak answer costs more than a slightly lower number would have.

Investors are not checking your number. They are checking your reasoning.

An early-stage valuation is a negotiation, not a calculation. Nobody expects you to have the "right" figure. What they want to see is that you have a method, that you know its limits, and that the number is consistent with the rest of your raise.

A defensible valuation usually rests on three things.

1. A round that is sized from milestones

Start with what the money has to achieve, not with the valuation. List the milestones that would make your next round straightforward: the revenue, the pilots, the technical proof points, the hires. Cost them out, add a sensible buffer, and that is your raise.

Once you know the raise, the valuation becomes a question of how much of the company you give up for it. At seed, most rounds land somewhere around 15 to 25 percent dilution. If your raise and your valuation imply 8 percent or 40 percent, you need a very good reason.

2. Comparables you can actually source

"Similar companies raised at $15M" is not a comparable. A comparable is a named round, at a stated stage, in your sector and geography, ideally within the last 12 to 18 months. Three or four good ones are worth more than twenty loose ones.

Be honest about the differences. If the comparable had twice your revenue or a stronger team, say so, and adjust for it. Investors respect a founder who discounts their own comparables far more than one who only picks the flattering ones.

3. A model that connects the two

Your financial model should show how the money raised turns into the milestones, and how those milestones support a higher valuation at the next round. If the step-up between this round and the next does not look plausible, the current valuation will not look plausible either.

This is where many models fall down. They are built to look complete rather than to be tested. Assumptions sit inside formulas, there is no sensitivity, and the use of funds does not map to anything specific. A partner will find that in the first ten minutes.

Have the answer ready before the question

When the question comes, a good answer takes under a minute:

• what you are raising and what it gets you to,
• the two or three rounds you benchmarked against and why,
• where you think you sit relative to them,
• and what would change your mind.

That last point matters. Showing that you have thought about the range, and that you are not anchored on one number, signals that you will be a reasonable partner to negotiate with later.

The number will move. The method should not.

You may well end up closing at a different valuation from the one you started with. That is normal. But a founder who arrives with a method negotiates from a position of understanding, rather than defending a figure they cannot explain.

If you would like a second view on your valuation or model before you go out, book a discovery call and bring the raise as it stands.