How to read a startup before thinking about valuation

Valuation is the number people quote first, because it sounds like a conclusion. For a private company it is a price someone is willing to pay for a specified piece of the company, on specified terms, at a moment when almost nobody else has to agree. Reading the company comes before arguing with the number.

The customer and the cash

The useful questions are ordinary. Who pays, how often, and for what. A contract with a named customer is a different fact from a waitlist. Revenue that is paid monthly and can be cancelled is a different fact from a licence paid up front. Cash leaving the company each month, and the cash still in the bank, describe how long the company can continue without more investment. That period is a planning fact. It is not a valuation, and it is not a promise that more investment will arrive.

The terms travel with the price

Two investors can ‘pay the same valuation’ and own different outcomes. A preference that is repaid before ordinary shares, a discount on the next round, or a right to convert a loan into equity changes what the price means. Dilution is the rest of it. If the company must raise again, today’s percentage of the company is not tomorrow’s. A headline valuation that ignores the next round is a price for a stake that will shrink.

What filings add, where they exist

Where an offer is made under US Regulation Crowdfunding, the SEC requires disclosure to investors and a filing. That disclosure can be incomplete and still be more than a campaign video. Where a UK platform is offering investment-based crowdfunding, the FCA’s consumer material is about the category of risk, not a review of the company. A regulator’s permission for a platform to operate is not an opinion on a startup. The document to read is the one that says what is being sold.