Guides · Capital raising mindset
How to Value Your Company Before Raising Equity
Most founders pick a valuation from a spreadsheet and then hope investors agree. Investors rarely do. They look at what you are asking for, how much of the company it costs you, and whether the proof is there.
At Family Office Club, I see this on stages and webinars all the time. The founders who raise well treat valuation as a check on dilution, proof and structure. Here is how I would work through it.
- 1Check the dilution math first
- 2Raise only what you can use
- 3Learn how family offices value
- 4Plan for the pre-revenue gap
- 5Build proof that supports your number
- 6Pick a structure that eases the debate
How it works, in order
Step 1. Check the dilution math first
Start with dilution because it is the easiest math anyone can do. An angel group leader I interviewed said seed founders should be giving away roughly 15 to 25% of the company. If you are far outside that range, it may be a warning sign. Either you are not raising enough to reach your next round, or your valuation may be too high. Work backward from the amount you need and see what percentage it costs you. That one check gives you a rough sense of whether your number is realistic before any investor sees it.
Step 2. Raise only what you can use
Ask how much money you could actually put to work in a month or two. Many growth capital raises are bigger than that. In one webinar I gave an example of a company valued at 8 million or 20 million today. I suggested raising 2 to 4 million, growing more, then raising again at a higher valuation, such as another 5 million at 40 million. Smaller first raises give away less of the company. In the 25 million example I gave, the founder ends up owning 80% instead of 61%.
Step 3. Learn how family offices value
Family offices are used to valuing a company on a multiple of profits. If your business makes 1 million dollars a year in profit, they may say five times profits and land near 4 or 5 million. That is a simple, grounded way to think. Run the same exercise on your own numbers before you talk to them. If your ask is far above what profit multiples would support, expect questions. You should know your answer to those questions before the meeting starts.
Step 4. Plan for the pre-revenue gap
If you have no revenue, no profit and an unproven team, a valuation of 5 million after nine months of building is hard for a family to accept. I see this conflict often. The fix I suggest is to go to families that already know your space. They understand the market and can open distribution doors. Having them as an investor can improve your odds of success. Do not expect a family with no experience in your industry to accept a number built only on your concept.
Step 5. Build proof that supports your number
Proof moves valuation more than a slide does. I tell founders to find a blue chip strategic anchor investor and folks who made their money in that industry. Get a prototype working and create a little revenue. Then try to scale that revenue to hundreds of thousands or a million a year to show the thing is real. A track record of building, scaling and exiting a business also makes a raise more likely. Each piece of proof gives you more room to defend a higher valuation.
Step 6. Pick a structure that eases the debate
If you cannot agree on a price, change the structure. I often see convertible notes for software raises, though it depends on how sophisticated the investor is. If they know your space and like you, they may want straight equity. If you have some revenue, a royalty or debt note can ease their worry about getting money back. One royalty idea I have used pays back until the investor gets 1.5 times their money. Many founders talk to a securities attorney about how to structure this before moving ahead.
Step 7. Build your gut with real deal flow
Math only goes so far. The angel group leader I interviewed called this an apprenticeship business. You may need to see around 50 deals before you sign a check. After that, you feel quickly when a valuation is bonkers and when it seems fair. I do not know a shortcut either. Practical move: talk to many investors, listen to how they react to your number, and adjust. In some cases, strategic value from your investor can support a better valuation than money alone.
From my talks
"You're going to give away less of your company. The capital raise is going to go faster. You're more likely to get oversubscribed."
"I think the number one challenge when going to family offices is that they're used to valuing things on a multiple of profits."
What I wrote about this
Price is only one piece of the deal, and strategic value can show up in the terms. In one company we invested in recently, we received an extra 2.5% of the company because of the strategic value we could add. Founders may see that kind of ask and should count it in their dilution math. I also like structures where investors reach a 2X return on their money and then keep a small equity kicker. They are not capped at 2X, and the founder keeps more ownership while the return is paid out. Sometimes that bridges a gap on valuation.
"You could have advisory shares in a company that you're investing in, and maybe if you think you could really add a lot of strategic value as a family office or strategic investor, like one company we invested in recently, we got an extra 2.5% of the company because of our strategic value."
"Many times we'll do a deal where the investors get a 2X return on their money. They're left with a little equity kicker, maybe some equity shares in the company in case they sell to private equity one day for an enormous sum. And that way they're not capped at a 2X return, but we're rushing them to a 2X return and then they have some additional upside."
What trips people up
- Raising a huge chunk at a low valuation and giving away far too much of the company.
- Skipping the dilution check and landing outside the 15 to 25% range for a seed raise.
- Asking a family office to accept a pre-revenue valuation when it values companies on a multiple of profits.
- Using a SAFE with no cap or discount, or ignoring that many New York investors dislike SAFEs.
- Pitching investors who do not know your industry and cannot add distribution or expertise.
Facts from this talk
- One angel group reported seeing about 60% convertible notes, 30% priced equity and 10% SAFEs, and wanted a cap and discount on any SAFE.
- In my 25 million example, raising in stages at rising valuations leaves the founder owning 80% instead of 61%.
- A gross revenue royalty deal can be set to pay back until the investor receives 1.5 times their money.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: AdTech, Managed Health, HealthTech, and Seed Stage Angel Investor Mandate Interview, Family Office Club Hot Seat Webinar Featuring Live Strategy Sessions with Investors & Founders, Capital Raising Frequently Asked Questions Webinar. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around convertible note terms, royalty note structures and offering documents. Do not use AI to write your own legal agreements.
Questions about this guide
How much of my company should I give up in a seed round?
The angel group leader I interviewed pointed to roughly 15 to 25%. If you are well outside that, check your raise size and your valuation.
How do family offices value a company?
They are often used to valuing on a multiple of profits. For example, they may look at a company making 1 million dollars a year in profit and think about five times profits.
Should I raise a large round at a low valuation?
Usually not. I encourage founders to raise a smaller amount, grow, then raise again at a higher valuation. You give away less and the raise tends to go faster.
Related questions
- What is a pre-seed round and who invests in it?A pre-seed round is the earliest outside money a startup raises, often before it has real revenue.
- How do I negotiate valuation with an early investor?Start with a valuation you can defend with traction and numbers, then expect the investor to push back.
- How do I value an early-stage company with no revenue?You value it on proof instead of earnings.
- How do I raise capital from Middle East investors?Start with a warm introduction from someone the investor already trusts.
Use the dilution calculator alongside this guide.