How to value your startup for fundraising

Valuing your company can be tough, especially when it’s something you’ve poured so much time and energy into. But it’s also key for working out how much money you can raise (without giving away more ownership than you want to).

There’s no single ‘right’ number for an early-stage valuation. Still, data from thousands of funding rounds closed on SeedLegals can give you a clear picture of where your company might sit and, maybe more importantly, how to explain that valuation to investors.

Investment vs equity: Finding the right balance

When putting together your pitch deck, you’ll face three big decisions:

• How much money to raise
• What percentage of your company you should sell (dilution)
• How to justify your valuation to investors

These aren’t separate, they’re linked.

The way to think about it is this:

1. Decide how much you want to raise to hit your next milestones.
2. Set the maximum dilution you’re comfortable with (often 10-20% at seed stage).
3. From there, you can calculate a pre-money valuation.

Then you need to ‘reality-check’ it with investors. If they push back, you can adjust either the amount raised or the valuation to keep dilution in range.

How much you should raise (and what it means for dilution)

Some advisors will tell you to ‘raise as much as you can’, but here’s why that doesn’t work in practice.

Let’s say you tell investors you’re raising $5 million for a pre-seed round. That might sound ambitious, but it also sends a signal about how much you think your company is worth.

Most early-stage investors assume their money will buy around 20% of the company.
If $5 million represents 20%, that means your startup’s post-money valuation would be about $25 million.

For a pre-seed company, that’s usually far too high. It suggests you might be overvaluing your business or misunderstanding how valuations work at your stage.

That’s why ‘raise as much as you can’ isn’t helpful advice. It can make you look unrealistic before the conversation even starts.

A better approach is to plan for 12-18 months of runway. That’s because fundraising itself takes time (often 6 months or more), and you’ll need to show progress before investors back you again.

When setting your funding target, it helps to start with a few key questions:

• What’s the minimum you need to keep the business running?
• What will it take to hit your next major goals?
• How much extra funding would you need for breathing room?
• At what point does raising too much start creating pressure or unrealistic expectations from investors?

When you’ve got those answers, map everything out in a simple spreadsheet. Work out your monthly burn (things like salaries, marketing, and development costs) then multiply by the number of months’ runway you want, adding a small buffer for surprises.

At this stage, be careful not to overextend your plan. Some founders start by imagining a full team straight away; say ten people, averaging around $80,000 each. That’s $800,000 per year in salaries alone.

If you then plan for 18 months of runway, your total funding you’ll need jumps to roughly $1.2 million. Add other expenses (like marketing and software) and it’s easy to end up targeting a $1.4 million raise.

At a typical seed-stage dilution of around 15%, that implies a post-money valuation of roughly $9-10 million. This is probably a lot higher than what investors expect for a company at that stage.

That’s why you’ll usually need to scale back your plan unless you can show the traction or investor demand to justify a bigger raise. Start with what you really need to hit your next milestone, not the ideal version of your future team.

Once you’ve set your target raise, check what that means for dilution. At angel and seed stage, founders typically sell 10-20% of the company. That’s the range most investors expect; enough upside if things go well and enough influence if they don’t.

So if your target amount and your dilution comfort zone don’t match up, you’ll need to adjust one or the other. Either raise less, or accept a lower valuation.

Let’s run through an example.

Say you want to raise $1 million and you don’t want to give away more than 15% of the company. To work that out, you divide the amount you’re raising by the percentage you’re willing to dilute. $1 million divided by 15% gives you a $6.67 million post-money valuation.

Then you subtract the $1 million investment, and that means your pre-money valuation is $5.67 million.

Now, imagine investors only think your company’s worth $3 million pre-money. That changes the picture. If you still raise $1 million at that valuation, your post-money becomes $4 million, and $1 million is a quarter of that, so you’ll have to give away 25% of the company.

If you want to stick to 15% dilution instead, you’d need to raise less money. At a $3 million pre-money, keeping dilution at 15% means raising only about $530K.

So the trade-off is simple: Either raise the full $1 million and accept more dilution, or raise less to keep ownership higher.

Agile funding: A smarter way to raise money

Traditional fundraising is like getting everyone onto a bus. You spend months lining up investors, negotiating terms, and closing one big round before you can finally drive off. It works, but it’s slower (and typically more expensive).

Agile funding is more like taking cabs. Instead of waiting for the whole bus to fill up, you let investors come in one by one using SAFEs, agreements that let them put in money now in return for shares at your next funding round.

This means less time negotiating and more time building. Investors pre-pay for shares, you don’t have to lock in a valuation too early, and you get the flexibility to raise when opportunities arise.

If you’re weighing up SAFEs versus a traditional priced round, we’ve explained the trade-offs in more detail here.

How investors work out your startup’s value

So far, we’ve looked at valuation from the founder’s perspective. But what about investors? The truth is, there’s no single formula for them either.

Ask three VCs and you’ll probably get three different answers, like:

• ‘Pitch me a number’: If you’re bold enough to justify it with your vision and your team’s ability to deliver, some investors are happy to go with it.
• ‘Multiply your revenue’: Companies with steady revenue can benchmark by applying a multiple to their annual revenue. In the US, early-stage SaaS or tech startups might see 5-10x revenue multiples, while consumer or services businesses are usually lower, closer to 2-4x.
• ‘Look at competitors’: Investors will check Crunchbase or PitchBook to see what similar companies raised, and adjust based on your stage (whether you’re pre or post revenue, or pre or post launch).
• ‘Follow the market’: Sometimes it just comes down to sector demand, recent exits, and, frankly, gut instinct.

Some investors lean on spreadsheets, others on stories.

Either way, backing up your valuation with data makes your case far stronger.

Need help with your funding strategy?

Whether you’re figuring out your valuation, deciding how much equity to sell, or planning the right amount to raise, SeedLegals can help you.

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