One year I was at Stocktwits listening to Howard Lindzon talk about early stage investing. Howard is a pretty darned good early stage investor. He mentioned that some of his worst mistakes were passing on investments simply because of valuation. I think he passed on Twitter but got in via the back door with other investments Twitter acquired.
I have thought a lot about valuation. When I first started angel investing, $2M-$4M was pretty standard in the Midwest and around $5M-$8M on the coasts. That game has certainly changed.
Charlie O’ Donnell did an excellent blogpost a few years ago about valuation. I have blogged about it in the past. Valuation is important when it comes to IRR returns. But it shouldn’t be the only disqualifier. If a valuation is close to metrics you are comfortable with, you need to ignore it.
Focus on the team.
If there is one thing I have learned in angel investing, it’s all about the team. Great ideas are pretty meaningless if they have a shitty team. Getting to a Series A and beyond is all about execution. If the team is great and can execute, they will get there.
Jason Calcanis in his recently released book Angel echoes the same idea. Focus on the team. Professor Steve Kaplan has said over and over again the data shows great jockeys win, not horses.
However, if you think you are going to do your seed round for $10M+, you need to recalibrate as an entrepreneur. It is not likely to happen. If you think you can raise Series A as a first-time entrepreneur with no revenue at a high valuation you are probably going to be unhappy.