Under Valuation

How do you determine the value of a company? During the dot.com boom, we joked that you multiply the number of PhDs by a million dollars. As a freshly minted PhD looking for work, that led to some strange job interviews. I recall one startup I visited. My host spent the day showing me empty labs and offices while simultaneously telling me their plans to take over the world. At the end I was still confused what I would actual be doing there, so I asked. “Anything you like” was the response. They weren’t interested in me, just having yet another PhD to increase their exit valuation.

It’s true that much of a startup’s value comes from their team (see my post on acqhiring). Thinking that it is just related to the size of your team is naive. Here are some factors about your team that will incense your valuation, whether negotiating with an investor or purchaser.

  • How long has the team worked together? A team needs time to gel. Bonus points members have worked together previously.
  • Has the team shipped? The proof is in the pudding Multiple products are even better.
  • How many managers?Managers, while necessary, are not as valued in startups as workers.
  • Do you have shared values? Values are your team’s glue. A cohesive team is truly valuable.

Don’t just hire the most developers or designers. Put some thought into your team and how it will bring value. A small team that matches the above points will give a higher valuation than a large team pulled together quickly.

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