Raising venture capital 101 - Startup Valuations
The most common question I got from founders is “How do investors determine startups’ valuations?” Unfortunately, there’s no specific formula to determine the price of a startup, especially when it comes to early-stage companies with little to no traction. The ambiguity sometimes can be advantageous to startups, for founders can evaluate different terms and valuations offered by different investors.
Most often, valuation (or round price) is determined by demand and supply, geography, and industry. 
  • Demand & supply: One tactic I always tell our portfolio founders to do when it’s time to fundraise is to line up all the prospective funds/investors and schedule meetings with them in a 2-week period. 
First, this gets the founders in the “pitching and fundraising” mindset. But more importantly, it moves all the investors at the same speed (otherwise some investors might drag out the decision making timeline) and creates “FOMO” (“Fear of missing out”) among investors. 
If your startup is attractive to several investors, this increases the chances of getting multiple term sheets and having more negotiating power. 
  • Geography: How developed a startup ecosystem is matters in startup valuation. For instance, a Vietnam startup raising series A cannot command the same valuation as a Silicon Valley startup also raising series A. This is because for a young and nascent startup ecosystem like Vietnam, the risk is much higher for an investor, and there is also not as much capital floating in the ecosystem.
  • Industry: Companies in different industries will have variable capital needs, resulting in different valuations. For instance, a hardware company (think Dat Bike) will have higher capital needs early on to develop the technology and produce physical products. On the other hand, a consumer app (think Fonos) will have lower capital requirements right at the beginning. So a hardware startup might need to raise more money at a higher valuation early on. This does not necessarily hold true down the road, as companies expand market share and have more traction.
For later-stage companies with more operating data, investors might build out a complex financial model to forecast revenue and free cash flow, and apply more traditional valuation methods such as Discounted Free Cash Flow, Public Comps Multiples, and M&A Comps Multiples.
Bottom line: For founders to succeed in getting a favorable valuation, they need to set the right expectations (by studying comparable companies in similar space, geography, and funding stages) and run the process with multiple investors at the same time. 
Tác giả: Phan Thị Hồng Vân