Reply To: AltoIRA on Republic – Exceptional Terms?

[Brian]

Hi Jason,

Sorry I didn’t get a chance to respond to this before the campaign closed.

Personally, I focus more on startups in the sub-$20M valuation range as my sweet spot, so I honestly didn’t give this one too close of a look.

Looks like the discussion is closed now so I can’t read the Q&A, but I’d really need to see impressive growth and revenue numbers for 2020 that justify the $30M valuation cap. With most recent fiscal year revenues of $78,574, a valuation of $30M is crazy high in my opinion (that’s a revenue multiple of 381! Revenue multiples for SaaS startups tend to be in the 5-10X range, maybe 20X on the high end for the hottest deals), but there could be other factors at play (having a very experienced team with prior exits, key investors, that type of thing can also get higher valuations), and granted, there are plenty of counter-examples of pre-revenue companies raising at high valuations in the $10-20M+ range.

Note that technically “valuation cap” of a SAFE isn’t the current valuation – it’s just the cap at which it will convert (you’ll get the better deal of either the valuation cap or the discount rate). That being said, investing in a valuation cap that is way higher than an anticipated future financing round means you’ll essentially be taking all the risk without much benefit by investing early, so you want to find valuation caps that are aligned with reality of what they could be worth today.

Competition can be a good thing (i.e. if nothing else, it can hint at validation of a promising business opportunity that others also realize), so the main question I tend to lean on in that instance is “why this team?” and “what are their key differentiators?”.

It doesn’t always have to be some super-secret tech or IP that leads to a unique advantage – it could be first-to-market, having an impressive brand, or many other things. That being said, I’m personally less adept at noticing those things (vs. a unique idea and/or technology).

All this being said, while I decided not to invest myself, I love the AltoIRA team and product, and they could benefit from an overall rising tide market, especially with the recent SEC changes being adopted this past Monday.

My 2 cents – hope this helps.

Thanks,

Brian

• This reply was modified 3 years, 5 months ago by  Brian.