At CircleUp, an equity crowdfunding site, we accept fewer than 2% of the companies who apply to raise capital on our platform. While there are a myriad of reasons why we pass on companies, one that always pokes its head up is valuation—that is, we are pessimistic that the company will successfully raise capital on CircleUp at the valuation they seek. Valuation is also top of mind for the investors on CircleUp.
As any seasoned investor will tell you, valuation—be it private consumer companies, public oil stocks, real estate, art, etc.—is part science, and part art. I spent seven years in consumer-focused private equity before founding CircleUp, and evaluated thousands of consumer brands—but there was never a one-size-fits-all approach to value these brands. Having said that, below are 3 considerations for investors valuing early stage consumer companies:
At This Stage, Valuation Doesn’t Matter…as Much as you Think. A $10 million valuation vs. a $12.5 million valuation sounds like a big gap (25% to be precise) right? Yes, but not nearly as big as you might think.