So far, we’ve only discussed pricing an investment through the lens of the venture investor. While some might argue that the venture investors’ willingness-to-pay for equity should serve as a signal for the true value of a business, especially given the sheer volume of those doing so, this approach completely ignores the supply-side of the market: the founders.
At Tuhaye, we strive to quantify early-stage risk so that we can utilize it in our pricing methodology. One of our simple measures to evaluate the underlying Risk at an investment is to look at a company’s Equity Leverage at the time of financing.
Since the start of the “unicorn” era, investors, founders, and journalists have all focused on private valuations. Using valuations, markets characterize startups as being either “cheap” or “rich” relative to their size and stage on the relentless slog toward $1 billion.