How to evaluate your startup’s valuation before fundraising
The first number you put on your company will follow you longer than your logo.
It will decide who takes you seriously, who walks away, and how hard your next round will be. Too high, and you scare off the people who could help you most. Too low, and you spend years fixing a mistake you made in one meeting.
Valuation is not about pride. It is about setting a price that your future can survive. It shapes how much control you keep, how flexible you remain, and how believable your growth story sounds to the next investor. A wrong number does not just hurt one round. It affects every conversation after that. It changes how partners see you, how talent judges your stability, and how confident you feel making long-term decisions.
Get it right, and your company grows with room to breathe. Get it wrong, and you spend years negotiating your way out of a corner you created on day one.
Where your startup stands today?
Most founders guess their stage. Investors don’t. They place you in one of three real buckets:
1. Idea + Build Stage:
No real users, maybe pilots or waitlists.
Typical angel view: You are still proving demand.
Valuation usually stays modest because risk is highest.
Early Usage Stage:
30 to 100 active users, some repeat behavior, maybe first revenue.
Investors see early proof, not certainty.
This is where valuation starts moving based on traction, not story.
Early Revenue + Retention Stage:
Regular users, repeat buyers, ₹50k–₹1L+ monthly revenue, visible growth.
Now valuation is shaped by how fast and how cleanly this can scale.
Be honest about where you are. If you call yourself “growth-stage” but can’t show retention or revenue, the room will quietly downgrade you.
A simple check:
If users would not complain if you shut down tomorrow, you are still early. Price yourself like it.
The three anchors that should shape your valuation
Early-stage valuation is not magic. It is usually built on three practical anchors that investors look for, even if they do not always say it directly.
1. Traction Anchor:
This is about real usage, not interest. To face Investors with clarity, ask yourselves questions like - How many real users do we have?
How often do they come back?
Is money changing hands?
Regular users, repeat buyers, and even small but steady revenue signal that the product is solving something real. A product with 50 weekly users and ₹75k monthly revenue will always price better than one with 500 signups who never return.
2. Market Anchor:
Know who you are building for and how big and painful the problem is. Investors want clarity. They ask who exactly the customer is, what problem is being solved, and how many such customers exist. A focused solution for a large, clearly defined market is far stronger than a vague product for “everyone.” Even early, a sharp market story can lift valuation because it shows room to grow.
3. Team Anchor:
This is about your ability to execute. Have you built in this space before, or worked close to this problem? Do you understand the customer deeply, or are you still guessing? Investors back people as much as products, especially when the product is still young.
If two of these three anchors are weak, your valuation should be conservative. High numbers only work when more than one anchor being strong.
How much equity is too much to give up early
This is one of those decisions that shapes your future more than your pitch ever will.
In most healthy angel rounds in India, founders usually give up around 10 to 20 percent of the company. Crossing 25 percent is already a warning sign unless traction is unusually strong. The reason is simple. Every round after this will dilute you again.
Picture a simple case. A founder gives away 30 percent in the angel round because the cheque looked attractive. A year later, Series A investors ask for another 25 percent. That founder now holds less than half the company before the business has even found stability. Control becomes harder, decision-making gets complicated, and future investors start questioning whether the founding team is still strongly incentivized.
Here is a practical way to think about it.
First, define your next real milestone. It could be reaching ₹1 crore in annual revenue, hitting 10,000 active users, launching a stable product, or entering a new market.
Second, calculate the minimum amount of money needed to reach that point, not a dream budget, but a survival-and-growth budget.
Third, look at how much equity that money costs at your chosen valuation.
If hitting your next milestone means giving away more than 20 percent today, your valuation is working against you, not for you.
For example, if you need ₹1 crore to reach your next milestone and your valuation forces you to give away 30 percent for that amount, you are paying too high a price. Either reduce the raise, improve traction before raising, or adjust the valuation.
It is usually better to raise a little less at a sensible number and protect your future, than to raise big once and spend years fixing a mistake made in one meeting.
Stress-testing your valuation before you pitch
Before you say your number out loud, run these four tests.
1. The Future Round Test:
After this round, can you still raise another without losing control?
If not, your number or your raise size is wrong.
2. The Explanation Test:
Can you explain your valuation in two minutes without using hype words?
If it needs long stories, it is probably weak.
3. The Investor Reality Test:
Talk to two people who have raised recently at your stage.
If your number is far above everyone else, you better have proof to match it.
4. The Survival Test:
If growth is slower than planned, will this valuation hurt your next round?
High numbers only work when performance stays strong.
A founder once raised at a flashy valuation with no strong retention. Six months later, growth slowed. Every new investor walked away because the earlier price no longer made sense. The business did not fail but valuation did.
Valuation is not a trophy. It is a tool.
Use it to buy time, trust, and room to grow.
Set it too high, and you create pressure you may not be ready for.
Set it too low, and you limit what you can build.
The right valuation is the one that lets your company breathe today and still stand tomorrow.
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