Pre-seed investments are usually given to companies that have not yet developed a product, often even before a founding team has started working full time. As such, valuation during pre-seed investments is much more of an art than a science.
Here are some general points to remember when it comes to pre-seed valuations:
Valuations are based on the stage of the company. Pre-seed valuations are significantly lower than those of later stages, such as Series A, B, and C, because they involve more risk.
Valuations can be higher if the company shows a lot of potential and has strong metrics. These can include traction, a skilled team, well-defined product-market fit, a solid business plan and an experienced advisory team.
Angel investors and venture capitalists also consider the size of the market that the company is targeting. Generally, bigger markets mean higher valuations.
Valuations may be higher if investors feel like they have bargaining power. They may also offer more for a larger ownership stake in the company.
Valuations can be impacted by external factors such as market conditions, sector trends, investor sentiment etc.
Pre-seed valuations are ultimately determined on a case-by-case basis. Much needs to be taken into consideration, such as the specific stage of the company, its potential, the size of the market, the skills and experience of the team, and the level of bargaining power available to the investors.
For more information, refer to this helpful guide: