(Note: read the comments on this blog’s post since numbers change with the investment environment. The post does point to process though).
The operable word, valuation, in the phrase ‘pre-money valuation’ is really a misnomer. Typical angel or venture capital investors aren’t really attempting to determine ‘value’, but instead they are attempting to determine ‘price’. This is an important distinction. Consider the value of crude oil versus its price today – they have little in common.
David Berkus’ valuation method as described in Winning Angels suggests:
* Sound idea = $1MM to company’s value
* Prototype = $1MM to company’s value
* Quality Management Team = $1-2MM to company’s value
* Quality Board = $1MM to company’s value
* Product rollout or sales = $1MM to company’s value