Q: I'm creating an app and bootstrapping the development, but I'd like to raise money so I can market it. I have some interest from an investor and he's introducing me to other investors, but I have no idea how to set a valuation. We haven't even launched -- how am I supposed to know what it's worth? And, what's the right percentage to give up?
-- First-time founder of a consumer app in the dating space
I understand why you're confused. Setting valuation for a startup is kind of like trying to figure out the odds of the Super Bowl before the game is played. In this case, the winners and losers don't go home after the game is over; investors and entrepreneurs will be working together for many years.
You have to determine what the company -- your idea and team -- is really worth. Solicit a couple of friendly sources for their feedback on what the market is currently paying to invest in a company like yours. This answer can vary with time, your revenue, your sector, or recent news about you or competitors. We worked with one startup that easily was able to raise up to their series B -- until Google entered their market and offered their services for free. And trends change -- in 2013, it was easy to raise a round with a deck that started with "Uber for X," where X could be laundry, alcohol, even furniture. Try that today, and VCs probably won't respond.
Of course, you want the maximum valuation for your company, but it's important to take a long-term perspective. It might seem like you won if the deal is overpriced and you gave up less of your company, but, in reality, that comes with the price of an investor with a board seat who's steaming about overpaying for an overvalued deal.