Unthinking Machines
Much digital ink has been spilled on mathematically “rational” ways to value pre-seed startups.
A noble effort, but pointless: it doesn’t exist.
Here’s how pre-seed startups get valued…
A founder decides a number they need to raise to achieve a given set of milestones. The VC market then back solves for the dilution a founder can/should take on (95% of the time, the answer is 10-20%).
$ Needed / Dilution = Entry Valuation
If the VC market believes there’s a 10-100x+ upside opportunity from that entry valuation, term sheets fly. If they don’t, they don’t.
And that’s pretty much it.
Better founders will need to dilute less, can raise more, or both.
Thinking Machines, which raised a $2bn seed round (WTF!!), was valued at $10bn. Guess what: that’s 20%. Great founder.
It’s as simple (and mental) as that.