Startup Valuations & Fundraising (Summer 2022 Edition)

This is Part 1 of a 5-Part Series, tied to our publication of the PCG Calculator.

Everyone’s stressed about the markets and valuations in Q2-Q3 2022. The public market has faced a massive correction — particularly for high growth tech stocks, many of which are down 70-90%. Private companies (Instacart, Klarna) are slashing their valuations or raising down-rounds at a materially lower valuation. There’s loads of discussions on VC Twitter about VCs “going away for the summer”. While early stage companies (Seed ↔ Series B) felt the pain last, even those segments are raising down rounds or flat rounds, 1-2 years after their last round (despite material growth or meaningful progress) which has to feel like crap.

You’ve heard VCs explain that this is the new normal, or that it’s reversion to the mean. There’s truth to both, but both are incomplete explanations.

What’s happening is a market correction, which often starts off with an overcorrection. This doesn’t make the overcorrection right or wrong. It simply… is. Even if it feels like it’s

We just published the PCG Calculator, which spits out an estimated valuation based on a) your revenue, b) unit economics, c) growth rate, and d) current market cycle.

This calculator is our best estimate for a “fair valuation” for your company in this market cycle. However, as you can tell, companies get valuations that can often be disconnected from their fair valuation, for a whole host of idiosyncatic reasons out of their control. So, our goal isn’t to pretend like our methodology is perfect and precise, but rather to provide a starting point which is better than “we’re seeing companies raise at 10-20x sales” which is basically useless, unless growth rate and unit economics are accounted for.

This calculator, and the below posts, are our contribution to the ecosystem, at a time when fundraising is stressful, painful, and tricky for founders & execs… at every company. Even when it’s easy, it’s hard. We hope this helps with your journey, and good luck.

Part 1: Startup Valuations & Fundraising

Part 2: The Flavors of Fundraising

Part 3: How Should I Value my Startup?

Part 4: Communicating Valuation to Investors

Part 5: Planning and Allocating Resources

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