In my post about valuation of a startup, I mentioned a few different methods for trying to assess the valuation of a young company. As I was trying to find other good sources of information, I came across this interesting perspective by Paul Graham at Y-Combinator.
This is an interesting way of looking at things in the early stages for example when you’re inviting your first investor or thinking about providing ownership to an early recruit. Basically, if you think your outcome increases with more than you’re giving away, you should be fine.
Y-Combinator are sometimes accused of paying too little for the 5-7% ownership they request, but one should think about if the money plus what else you receive by being an Y-Combinator company is worth the 5-7% of dilution. I am pretty sure that the answer in most cases is yes! However, would it be the same if they only provided office space as some incubators do. Not very likely!! So, the valuation exercise often really is about valuing what you’re getting as much as at what price you’re giving it away.