In raising funding, you’ll need to propose a value for the equity in your startup called valuation. One way to set a valuation is to use the 5X your raise method.
Here’s how it works.
Most investors want to see the valuation for their money coming in at 20%-25% of the post-money valuation.
This gives a 4X-5X valuation based on the investment.
For example, using 4X raising $500K, a $500K investment plus $1.5M pre-money, yields a $2M post-money valuation.
In another example using 5X raising $500K, a $500K investment plus $2M pre-money, yields a $2.5M post-money valuation.
Using this method, your pre-money ranges from $1.5M-$2M.
This gives you a ballpark estimate for setting the valuation of your raise.
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.