What do you do if you're valuing startups leveraging new technology?

Ever wondered why valuing a tech startup feels like being a fortune teller? I once faced valuing a startup that claimed their tech would revolutionize how we eat! Assessing market need isn't just about believing in the future—it's a critical dance of skepticism and vision. Are they solving a real problem, or just creating fancy solutions to non-issues? Getting this right is key; after all, nobody wants to back the next "revolutionary" tech flop. Do customers really crave what they're cooking up? #divineintervention #gabenfreude

Assess the value offering of the startup: Is it a VITAMIN or PAINKILLER? Invest in painkillers. Repeat. Let me explain with fancy LLM stuff: Nvidia is an absolute painkiller, but most of the apps built on OpenAI models are vitamins, or a cherry on top. They are good but won't be able to get strategic control over a part of value chain.

Conduct thorough market research. Analyze the potential market size and growth. Assess the scalability and sustainability of the technology. Evaluate the strength of the intellectual property. Consider the competitive landscape and barriers to entry. Review the startup's team and expertise. Estimate future revenue projections and cash flows. Apply appropriate valuation methods (e.g., discounted cash flow, comparable company analysis). Factor in the risk associated with new technology adoption. Seek advice from industry experts or consultants if needed.

Assess the Technology: Understand the technology the startup is leveraging. Market Potential: Analyze the market the startup is targeting. Estimate the market size, growth rate, and any barriers to entry. Business Model: Evaluate the startup's business model. Team: Evaluate the team's expertise, experience, and track record. Financial Projections: Review the startup's financial projections. Risk Assessment: Identify and evaluate the risks associated with the startup.

Depending on what stage the company is at - a safer way to look at any revenue modelling is often to look back rather than forward. Do previous years R and RR stack up in terms of growth? What was the rate of the previous 24 months to suggest that the curve will continue to trend upwards, or if it isn't, why? If it is a model from fresh air i.e. at pre-seed or seed stage then is the amount of paying clients in sync with the market size? Is there a comparable pricing model in another market that aligns with the revenue forecast and what did it take for that company to achieve it? Comparison may be the thief of joy but its also the best you've got sometimes!

My Experience: In my angel fund and accelerator roles, I've seen firsthand how crucial a well-defined revenue model is - Beyond Theory: Founders often have great ideas on paper. Dig deeper – do they have early pilots or proof of concept that validates their model in the real world? Traction vs. Hype: Especially with new tech, don't be swayed by just buzz. A less 'sexy' model with paying customers often beats a flashy one with no revenue. Understand the Market: Is the revenue model truly disruptive, or just a variation? Assess how it fits the competitive landscape and potential customer adoption hurdles.

From the competitive standpoint, it's extremely important to evaluate not only the unique items that your product have, but other don't. But vice versa, what features are lacking in your product. Then rate all items from the ideal client profiles value-add perspective. And on the intersection of those items, you will see a fair view of the company’s competitive strength.

Ever played the high-stakes game of "What If?" when evaluating a startup? Reflecting on my own ventures, I vividly remember analyzing a promising tech startup that faced potential regulatory tsunamis. Conducting a thorough risk analysis isn't just about dodging bullets; it's about weighing the "what could go rights" against the "what could go wrongs." Can the technology withstand the test of time, or will it be yesterday’s news? Such assessments can turn the risky into the rewarding. #divineintervention #gabenfreude

Al valorar startups que aprovechan nuevas tecnologías realiza un análisis de riesgos: 1. Barreras regulatorias: Evalúa los desafíos legales y de cumplimiento que podría enfrentar la tecnología. 2. Tasas de adopción: Considera qué tan rápido se adoptará la tecnología en el mercado. 3. Obsolescencia tecnológica: Ten en cuenta la velocidad con la que la tecnología podría quedar desactualizada. 4. Análisis de oportunidades y riesgos: La valoración debe reflejar oportunidades y riesgos inherentes. 5. Valuación conservadora: Una startup con alto potencial pero riesgos significativos requiere una valuación más conservadora para compensar las incertidumbres. Esto ayuda a tomar decisiones de inversión más informadas.

Technology itself without it being applicable to certain industry or product, without clear value proposition has no value. Look for clear value proposition, business model and whether the technology is applied to build a final product that gives a clear value to end user or businesses. Don’t fall into “blockchain startup in sake of building on blockchain”.

Let's not forget that increasingly, corporate equity is not the only investor entry point. With blockchain/crypto projects, often you're only able to invest in tokens, and not the project company equity, making the valuation process very different. Token valuation is influenced by blockchain project specifics, like community narrative and team (note the Sam Altman effect on World Coin, or Musk/Swift and Doge Coin), the utility of the token within the project's ecosystem, user adoption rate, growth potential, network effects, socio-economic incentives, token scarcity/inflationary model, and governance mechanisms. Understanding whether you're investing in equity or tokens is crucial when thinking about value (or price). It's a new world.

Assess the probability of achieving sequential breakthroughs in commercialising the technology. These companies typically are higher-risk due to adoption uncertainty, which should assist in adjusting your risk measures.