Essay · 15 min read

'Exhaust Fumes', or, Understanding Startup Valuations

Sajith Pai · Blume Ventures Free Intermediate India

Written by a partner at Blume Ventures, this is the India-specific version of exactly what we're telling founders: valuation is not a spreadsheet output, it is (in Fred Wilson's line the piece builds on) the exhaust fumes of a negotiation about two things, the amount raised and the dilution. It shows the real Indian seed math (a roughly 1 to 1.5M dollar cheque for a 15 to 20 percent stake, back-solving to a 5 to 7.5M dollar post-money) and why the VC sizes the round to get you to Series A, not to please your ego.

  • Post-money is just cheque size divided by target stake: a 1M dollar cheque for 20 percent is a 5M dollar post-money, nothing more mystical
  • Indian seed VCs anchor on a 15 to 20 percent target stake and a cheque sized to fund the runway to Series A
  • The price falls out of the raise-and-dilution negotiation, so shaping those two levers matters more than arguing a valuation
Open on sajithpai.medium.com ↗

The question it answers

  1. How do I value my pre-revenue startup, and who actually sets the price?

Read with it

  1. The canonical, no-nonsense overview of how seed fundraising works, written by a former YC president who has seen thousands of... Y Combinator Startup Library Article · 20 min read A Guide to Seed Fundraising Geoff Ralston
  2. Once you accept that the market sets the price, this piece shows you the actual methods investors reach for when there is no... Mercury Article · 12 min read How early-stage startups are valued by seed and Series A investors Mercury
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