How to value your early-stage startup

Mayfield Fund partner Raj Kapoor says between $1 mln and $5 mln is typical

"Venture capitalists are asking that question too," said Raj Kapoor, managing partner at Mayfield Fund, which raised a nearly $400 million fund in September 2008. Raj was responding to a question I asked about how an early-stage startup should value itself. I asked this question because of one of our Vator members, Jeremy Campbell commented on an interview I had done with angel investor Aydin Senkut, titled: How to hook this angel. In that post, Jeremy said: "Valuation is such an important topic, and I feel there is a lack of information out there on the subject." 

So, this ones for you Jeremy.

"If a product is relatively new, numbers you see is anywhere between $1 million pre-money and $5 million pre-money," said Raj. But a lot depends on the idea and the competition for the deal, Raj added. The key to valuation is getting enough interest around an idea that there is a perception of demand. In some cases, startups with founders who have stellar backgrounds can fetch $10 million in pre-money valuation. But that is rare. Additionally, not all companies can attain a $1 million valuation. That's just more common with high-tech startups.

Remember, Raj said. "There's a bifurcation in valuations." Stellar ideas and teams can get an exponentially higher valuation than an average idea and team. 

Raj also talks about his view on the venture capital industry, responding to a recent report out by the National Venture Capital Association that said that VC returns registered a nine-year return of negative 5%. "We went through a difficult time overall in the tech industry," he said. The good news is that now is the time to put capital to work.

"The best returns are made investing in the trough, which is where we are right now," he said. "Exits are challenging, but we're seeing no shortage of deal flow."

Also in this segment, Raj talks about what he sees as interesting areas to invest and why he thinks there's too many video platforms out there that he'd most likely not invest in one.