Thread by @dunkhippo33

Yesterday, @MacConwell, @jefielding & I chatted about valuations yesterday on Clubhouse.

Some thoughts & takeaways from the discussion.

tl;dr: Valuation is NEVER about how much your co is "worth". It's about the price of your equity that you and investors agree upon.

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1) As I like to say, valuations are about supply and demand. Supply of your round / tranche. Demand of investors. It's your job as a founder to generate that demand.

That's what allows you to command a higher valuation. Investors don't just naturally offer you a high valuation.

2) Investor demand increases when you have lots of investors circling AT THE SAME TIME.

It does no good to have 1 investor look now and then approach another investor later. Investors need urgency.

3) This is why demo days at accelerators work. Investors all circle on the same companies at the same time. And basically a bidding war on valuations happen if a company is interesting.

Top accelerators can make that bidding war easier. But you can also generate that yourself.

4) The reality is that being well-networked helps -- you know ppl directly who can participate in that bidding war.

But you can also build network even if you are not well networked.

5) @MacConwell said that most ppl spend too much time building their product when they are in an accelerator when you should really use the program to help you network A LOT. Meet everyone. Keep them warm and build network.

That's where a lot of the value in accelerators lie.

6) What makes investors interested? Traction helps for sure. It's not the only thing, but more ppl are interested if you have done something than nothing.

7) The specific idea your working on will dictate interest (or lack of interest) in investors wanting to join the bidding war.

E.g. Fintech is hot right now. SaaS has recurring revenue.

Strong potential for repeat purchases and upsells drives up interest for sure.

8) In the public mkts, we see this with Snowflake (despite their stock price having dropped recently). They have strong retention & upsells that ppl are willing to pay up for shares in the company. Their mkt cap (which is the equiv of valuation) is high because of this.

9) This is why historically e-commerce companies haven't had great valuations. Concerns about consistent repeat purchase potential. And COGs. This makes it harder to scale an e-commerce co into a BIG business.

And that's why valuations tend to be lower for these companies.

10) Geography matters too. Even though ppl are working remote now, investors factor in mkt size. And if you are working on something for your local mkt, that will be a factor in what valuation you can get.

11) In addition, has there been a big exit in your mkt before? Investors are backwards thinking on this IMO but if your local mkt hasn't historically had big exit opportunities, they will factor that into the valuation.

12) So in short, your valuation is a combo of many factors:

-investor interest in the idea
-your geography
-your ability to bring a lot of investors to the table at the same time
-your ability to create forcing functions / urgency

It is NOT actually about your company's worth.