It’s mostly depend on the angle you are coming to this good question. If you are the founder, valuation matters because it determines the share of the company you are going to give away (to investors) in exchange for money. If you are the investor, you want to make sure it’s the right deal in terms of risk/reward or give/get.
When you listen to experts in this domain, in most cases, the answer is something like: “It is a form of art rather than science”. But this is not very helpful, is it?
Let’s break the puzzle into few pieces and see how can we think on each one of them. Here are few questions to help us identify what we are doing in each piece. We start with ‘What we are going to solve’ (=problem) and with ‘How we are going to solve it’ (=solution). Later, we should see what is the potential (=market) and what are the risks (= direct/indirect competitors). We also need to show the team and why it’s capable to deliver. Continue reading