How to Value Your Startup: A Guide for Seed-Stage Founders

Valuing your startup appropriately is essential to long-term success. Here's what you need to know.

The 1 thing to know

Valuation is a strategic decision that impacts future funding, ownership, and exit potential. Set it too high, and you risk a painful down round. Too low, and you lose unnecessary equity. The key? Anchor your valuation in data, market norms, and your next fundraising milestone to maximize leverage and long-term success.

Why it matters

Your valuation impacts:

📉 Equity & dilution → How much ownership the founders & team retain.

💰 Future rounds → Sets expectations for Series A & beyond with little room for error. Raise at too high a valuation, and you risk being over-valued compared to your traction ahead of the next round, raise at too low of one and you risk overdiluting and reducing optionality.

👥 Team incentives → Impacts hiring & retention. It becomes very hard in later stages to attract & retain employees if the employee stock option pool runs out and there’s no ability to refresh it.

📊 Post-seed, the median founding team owns 56% equity. After Series A, that drops to 36% (Carta Founder Ownership Report 2025).
Your biggest levers are valuation & round size. Small tweaks can preserve long-term ownership across rounds.

✅ Plan for future fundraising → Even if you’re aiming for profitability and this being the last round, assume you'll need to raise again. Flexibility = leverage.

💡 The increasing popularity of bootstrapping → More founders are avoiding the venture route since the recent tech bubble popped to maximize ownership and control – especially since smaller exits can yield bigger payouts.

What we’re seeing

B-school teaches the VC Method & frameworks like Berkus. Reality? Early-stage valuations are driven by:

📈 Market demand → What investors are willing to pay for ownership in your startup. Generally speaking, the more competitive the round, the more investors are willing to be flexible on valuation (i.e. higher demand = higher valuation).

⚖ Founder dilution norms → Typically 15% - 20% for Seeds and Series A’s (though ideally less), and 10% - 12% per round from thereon out (2024 Carta report here). Investors are aware of what is “acceptable” dilution, and should be incentivized not to overdilute the founding team because they know overdilution can be an impediment to attracting future investors.

📊 Comparable deals → What other, similar startups recently raised at. This is where VCs have the edge, as they’re always in-market, whereas founders may be in-market once every few years. As a result, they have a “finger on the pulse” and can generally tell you what certain types of deals are “going for”.

Where to start

There’s no perfect formula - we suggest using multiple data points to come from a position of strength. Investors appreciate a well researched “ask”:

🔍 Direct comps → Valuations of similar startups (same stage, geo, vertical, etc.) that recently raised. The easiest way to get this information is by working with a venture data provider such as Crunchbase, Pitchbook, or Flowlie.

📊 Market norms → Carta and Pitchbook in particular have fantastic quarterly reports showing valuation trends by stage and deal size.

📉 Round size & Dilution → These are the levers that impact valuation. Generally speaking, the larger the round, the higher the valuation tends to be to counteract dilution. Founders should consider the tradeoffs between the amount of cash raised, how much dilution they will incur, and how the valuation that is set impacts their future prospects (for example, will they be over-valued compared to their traction when going out for the next round of funding).

💡 Over Simplified Example: If I raise $2M on a $20M post-$ valuation (that is, the valuation including the cash raised), all existing equity holders will be diluted by 10%. If I raise $4M without changing the valuation, dilution jumps to 20%.

💡 Pro tip: Valuation isn’t just about traction or growth rate. Investors factor in market conditions, competition, and team strength, among a myriad of other qualitative and quantitative factors.

Playing the long game

📈 Step-ups → The ratio of this round’s valuation to the last. Consistent, healthy step-ups = investor confidence. Carta has great information here as well (latest report).

💰 Revenue multiples → The ratio of valuation to revenue run rate. These start coming into play from the Seed stage on. Take a look at multiple reports like DealRoom’s to get an understanding of market averages and model out how much cash is needed to get you to a traction milestone that will appeal to investors in the next round.

🚀 Traction expectations are rising → What’s “fundable” at Series A is a moving target. Recently, the revenue bar has climbed from $1M ARR to $3M-$5M ARR for many SaaS startups. (Source: Mosaic Series A Report).

🚨 Warning: Over-inflated valuations in 2022 led to brutal down rounds. Higher isn’t always better. <30% of the unicorns from 2021 have raised financing in the past three years, according to Carta. Of those, almost half have done down rounds.

🔑 The Key: Model out how much cash you need to get to a traction milestone that will excite investors at the next round. Think of this as future proofing your business.

Presenting your valuation

Do your homework. Be prepared to:

📌 Reference comps → Show similar deals & valuations.
📌 Benchmark against reports → Market data = credibility.
📌 Justify premium → If your growth rate, team, or traction is exceptional, make the case for a higher valuation.

💡 Example: If your growth rate outpaces comps, argue for a higher multiple. If not, align with market medians.

The bottom line

Your valuation isn’t just a number – it’s a strategic lever that impacts ownership, funding, and long-term success.

✅ Be data-driven → Use comps, reports & factor in investor expectations.
✅ Think long-term → A realistic valuation can set you up for success with future rounds.
✅ Control dilution → Small tweaks now = big impact later.