Angellist Valuation: A Comprehensive Guide

Angellist Valuation is a crucial step for startups looking to raise funds from investors.

Angellist Valuation is a process used by startups to determine their company's worth, which is essential for fundraising.

This process typically involves using a combination of metrics, including revenue, growth rate, and customer acquisition costs.

As a result, the valuation can range from a few million to tens of millions of dollars.

Valuation is a crucial aspect of AngelList, as it determines the worth of your startup. AngelList uses a pre-money valuation method, which calculates the value of your company before investors inject new capital.

Pre-money valuation is typically based on the number of shares outstanding, with each share having a specific value. For example, if your startup has 100 shares outstanding and each share is worth $10, your pre-money valuation would be $1,000.

The pre-money valuation is also influenced by the number of shares held by founders and employees, as well as any outstanding options or warrants. This is because these shares can affect the overall value of the company.

Here's an interesting read: Angellist Startup

AngelList also considers the post-money valuation, which is the value of the company after investors inject new capital. To calculate post-money valuation, you simply add the new investment amount to the pre-money valuation.

For instance, if your pre-money valuation is $1,000,000 and investors inject $500,000, your post-money valuation would be $1,500,000.

If this caught your attention, see: Post-money Valuation

Calculating Valuation is a crucial step in understanding a company's worth. A post-money valuation is what a company is deemed to be worth after having raised a new round of financing. This is the total amount of money raised, including the new investment.

The pre-money valuation, on the other hand, is the company's worth before raising new capital. This is calculated by subtracting the new investment from the post-money valuation. For example, if a company raises $1M at a $3M post-money valuation, the pre-money valuation is $2M.

In practice, this means that each individual share of the company is worth a certain amount, based on the pre-money valuation. For instance, if a company has 1M shares outstanding and a pre-money valuation of $2M, each share is worth $2.

Calculating valuation can be a bit tricky, but it's essential to understand the process. A post-money valuation is what a company is deemed to be worth after having raised a new round of financing.

The pre-money valuation, on the other hand, is what a company is worth before raising new financing. This can be calculated by subtracting the amount of new financing from the post-money valuation. For example, if a company raises $1M at a $3M post-money valuation, the pre-money valuation is $2M.

When raising new financing, you'll need to issue new shares to investors. The number of shares issued is determined by the pre-money valuation and the amount of new financing. For instance, if the pre-money valuation is $2M and the new financing is $1M, you'll need to issue 500k shares to reach the post-money valuation of $3M.

Each share of the company has a value equal to the pre-money valuation divided by the number of shares outstanding. In the example, each share is worth $2, since the pre-money valuation is $2M and there are 1M shares outstanding.

As an investor, you'll want to know how much of the company you'll own after investing. This is determined by the number of shares you receive and the total number of shares outstanding. For example, if you invest $500k in a company with a $3M post-money valuation, you'll receive 250k shares, giving you a 16.67% ownership stake.

Internal Rate of Return (IRR) is a common metric used in venture to compare a fund's performance across vintage years. It's a way to evaluate the return on investment of a particular project or investment.

IRR is used to calculate the rate at which the investment's net present value equals zero. This metric is widely used in venture capital and private equity to assess the performance of a fund.

To calculate IRR, you need to know the cash flows of the investment, which can be positive or negative. It's essential to consider the timing of these cash flows when calculating IRR.

IRR is a useful metric for comparing investments with different cash flow profiles. It's not as straightforward as other metrics, but it provides valuable insights into the investment's performance.

Pre-money valuations can be tricky to determine, but they impact many other deal terms. Investors often request preferred shares to safeguard against overvaluation, which gives them benefits like liquidation preference, participation rights, and anti-dilution rights.

Preferred shares are generally more valuable than common stock held by founders and employees. This is because preferred shares offer investors more protection and benefits.

If founders and investors can't agree on a pre-money valuation, they might issue convertible notes to investors, which amount to a loan that can convert to preferred stock later.

Typical pre-money valuations for Series A deals have fallen from $65M to $45M over the past year.

Pre-money valuation impacts many other deal terms.

Pre-money valuations can be open to interpretation, so investors often request preferred shares as a safeguard against overvaluation.

Preferred shares give investors liquidation preference, participation rights, and anti-dilution rights, making them more valuable than common stock held by founders and employees.

Preferred shares are generally more valuable than common stock due to these rights.

Founders and investors may issue convertible notes if they can't agree on a pre-money valuation and there's still investment interest.

Convertible notes amount to a loan that can convert to preferred stock at a later funding round when valuation may be easier to determine.

SAFEs are popular with early-stage investors, who will generally convert at a discount or valuation cap at the next equity financing.

Typical pre-money valuations for Series A deals have fallen from $65M to $45M over the past 12 months, and linearly extrapolating, we'll reach pre-money valuations of $35M by the end of this year.

This timing aligns well with the forecast of the venture market beginning to recover at the end of 2023 and early 2024.

The ratio between the median Series A pre-money valuation and the median seed pre-money valuation has plummeted from over 6x to just 2.25x.

Seed round pricing is just beginning to fall, with the typical priced equity seed round on AngelList at about $16M pre-money, just a small drop from its $20M peak.

Successful seed investors are now seeing valuation step-ups of 2x or less from seed to Series A, which may not be adequate compensation for the increased risk of failure of seed investments.

We forecast that typical seed round prices will continue falling gradually for another year, as the adjustment in seed round pricing is the end of a long process that began with the public market drops in January and February of 2022.

Intriguing read: Seed round Valuation

AngelList's valuation of $4.1 billion with only 132 employees suggests a market value per employee of $31.1 million.

This is comparable to Carta, which was valued at $7.4 billion but employs 1,600 people, producing a market value per employee of $4.6 million.

AngelList effectively transformed every $1 million in capital raised into $22 million in corporate value.

AngelList's growth was fueled by its ability to handle investment on the platform, allowing accredited backers to deploy as little as $1,000 into buzzy startups.

By the end of 2012, AngelList reportedly hosted 100,000 companies and 5,000 accredited investors, showing the platform's potential.

The company's first big break came with the passage of Title II in 2013, which allowed startups to openly advertise funding rounds as long as they took "reasonable steps" to ensure investors were accredited.

AngelList capitalized on this shift by launching twelve syndicates on the first day the SEC permitted "general solicitation", with Tim Ferriss and Naval Ravikant among the organizers.

AngelList also raised $24 million from Atlas and Google Ventures at a mooted valuation of $150 million, and had raised a total of $86 million prior to this round.

The company's Talent and Venture practices continued to grow, and AngelList began spinning up venture vehicles of its own to bolster its investing work, including Maiden Lane, a $25 million vehicle designed to invest in syndicates on the platform.

AngelList's growth was significantly impacted by the JOBS Act, which allowed for more flexibility in startup funding. Accredited backers could invest as little as $1,000 into startups.

The JOBS Act's passage in 2013 was a major breakthrough for AngelList, particularly with the introduction of Title II. This allowed startups to openly advertise funding rounds as long as they took "reasonable steps" to ensure investors were accredited.

AngelList capitalized on this change by serving as the home for open fundraising activity and handling accreditation checks. The company's growth was impressive, with 100,000 companies and 5,000 accredited investors on the platform by the end of 2012.

AngelList's lobbying efforts, led by Ravikant and Laws, played a crucial role in the passage of the JOBS Act. The company's first big break came with the passage of Title II, which massively benefitted AngelList.

AngelList's introduction of syndicates was a game-changer, allowing investors to negotiate an allocation into a startup and accept co-investors. This structure showed "some product-market fit", according to Ravikant.

The launch of syndicates was a significant event, with twelve syndicates launched on the first day the SEC permitted "general solicitation." The response was overwhelming, with the world "tweeting about this every five minutes" for three days.

AngelList's innovative approach to bootstrapping capital supply has been a key factor in its growth and success. AngelList launched Maiden Lane, a $25 million vehicle, in 2014 to invest in syndicates on the platform.

Maiden Lane marked the beginning of a repeated tactic by AngelList to increase the value of its platform by bootstrapping capital supply. This approach allowed AngelList to bolster its investing work and attract more users.

In 2015, AngelList partnered with CSC Venture Capital, committing to invest $400 million in early-stage deals on the platform. This partnership created the largest single pool of funds devoted to early-stage startups – ever.

AngelList's team created SAX Capital, a registered investment advisor, in 2016. SAX Capital initially purchased secondary shares on the platform, allowing employees and founders of startups to realize the value of their equity.

As AngelList evolved, SAX Capital took on another role, serving as an advisor to vehicles that wish to focus on non-qualifying investments. This enabled firms to invest in other funds, buy secondary shares, or invest in debt instruments.

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Post-money valuation is what a company is worth after raising a new round of financing. It's a crucial metric for determining the value of your investment.

A pre-money valuation, on the other hand, is the value of a company absent any new outside investment or financing. It's what both investors and founders think a company is worth, but they often have differing opinions.

Investors should pay attention to the language founders use when talking about their company's valuation. If they say they're looking to raise $2M at a $6M post-money valuation, what they're actually saying is their pre-money valuation is $4M.

The post-money valuation can be used to determine what percentage of the company the investor is purchasing. You can divide the post-money valuation by the investment amount to determine the equity stake.

For example, if you invested $500k into a company at a $6M post-money valuation, your equity stake is 8.3%. The post-money valuation can also be used by founders to determine how much of their ownership they need to dilute to raise the capital they need.

If a founder is raising $2M at a $4M post-money valuation, it means their pre-money valuation is only $2M. This nuance has important implications when it comes to investors' ownership stake.

The post-money valuation is representative of the total equity value of the company. It's based on the share price determined using the original pre-money valuation.