Hi Anshu,
Everyone will obviously have their own opinions, and this was just via an extremely quick and high-level glance – I didn’t dive deep into the company, look at comps, etc, but here’s my two cents.
First, a few data points to put this in perspective:
- Pre-Money valuation of $25M for Preferred Equity
- Their current Reg A+ campaign is listed as being their “Series A”
- They’ve raised over $7M of previous capital from various venture funds, angels, and even corporate VCs (MasterCard)
- Revenue of $2.1 million in 2019 (152% YoY growth) – Source: SeedInvest
Based purely on the 2019 revenue number, the pre-money valuation puts them at a ~12x revenue multiple for the proposed valuation. While this may seem high as a “Price to Sales (P/S)” equivalent that public market investors are used to, it isn’t too uncommon for high-growth startups.
If you look at the median public TTM revenue valuation multiple here, you can see it has been trending up closer to 10x. However, also keep in mind that we are currently in the middle of a pandemic and a potentially large economic contraction, so other valuations have likely been driven down (although their valuation could likely benefit from the current crisis due to the nature of the business).
On the other hand, they haven’t generated any profits yet, and it looks like they don’t intend to in 2020 or 2021.
In the end, it sounds like they are likely in the ballpark of a fair valuation, maybe a little on the high end.
In this case, I would go back to the rule that Peter Thiel establishes in Zero to One:
“First, only invest in companies that have the potential to return the value of the entire fund.” And rule two: “…because rule number one is so restrictive, there can’t be any other rules.”
Since the valuation here doesn’t seem outrageous, it would more come down to a question of Peter Thiel’s rule, rather than whether the valuation is exactly where it should be…
Hope this helps!
Cheers,
Brian