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December 11, 2018

Series A Stage Pre-Money Valuation - Norms

Rick Norland

Rick Norland
Owner/Thorington Corporation

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Industry Norms

The market data, reviewed since 1990, indicates that these pre-money valuations have also remained relatively stable, fluctuating between, say, US$5 million and US$11 million.  As with Seed Stage pre-money valuations, these ones seem not to show much of an impact from external forces.

This stage represents the “crossover” of valuation approaches.  If the company is still “pre-revenue,” a more simplistic approach is used as the primary methodology (e.g. Cash Out Approach).  As the company gets nearer to a predictable revenue base, more “classical” approaches are used (e.g. First Chicago Method).  Unlike the Seed Stage, Series A pre-money valuation efforts normally employ a number of approaches with the final valuation being based on the “grouping” of results.  In this regard, Series A pre-money valuations include comparisons to similar transactions and, as a “sanity check”, to public market results.  These broader efforts notwithstanding, Series A pre-money valuations have still been between US$5 million and US$11 million.

As another “rule of thumb,” Fenwick & West LLP[1] reported in “Venture Capital – A Strategy for High Technology Companies” that the Series A share price should be perhaps 150% to 250% of the Seed Stage share price. 

[1] Fenwick & West LLP is a leading Silicon Valley law firm that has represented hundreds of growth-oriented companies from inception, many of which have become major public companies.  It also represents institutional investors and venture capital firms and has been a leader in structuring new financing vehicles for startup companies.

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