Valuations are one of the greatest causes for controversy between investors and startups.
Investors want to maximise their shareholding in a company and entrepreneurs usually want the opposite, while still taking the cash.
Mathias Kopp, Sydney Angels co-founder and managing partner of Covest Capital, explained at CeBIT Startup today that early stage investments are highly risky because of the lack of information about a company.
“In most cases it is a catastrophic failure,” he said, adding more than 50% are likely to never provide an investor return.
During his time at Sydney Angels most startup valuations have been well below $2.5 million. In recent years, post-investment valuations have dropped slightly as investors wise up to the sector.
“A startup valuation of between $1.5 to $2 million is a safe valuation, you [as a startup founder] can’t get it wrong at that level,” he said. “You only have one chance and you must get it right if you want to get funded.”
The table below shows where most startups fell when seeking investment from Sydney Angels in 2014. The majority of pitches came from tech startups seeking between $300,000 and $500,000 in funding.
Backed by the $10 million Sydney Angels Sidecar Fund, the group invests solely in early-stage ventures. The fund expects to invest the remainder of its available capital in Sydney-based startups over the next 5 years.