Why does valuation discount happen to companies?

We have seen many cases where some startups have a huge discount in their valuations compared to their peers. It begs the question why?

Some factors that we see contribute to this are:

  • The founders or CEO do not know their peer’s valuation
  • They haven’t fundraised much before and therefore they do not know how to deal with the numbers
  • The investors of one startup are short-term investors who just want to jack-up the valuations as quickly as possible so that they can exit fast
  • The startup’s sector is not in demand but the others are

So what should you do as a founder to make sure that you get the right valuation?

  • Talk to multiple investors to gauge how much your valuation is
  • Talk to other companies, even if they are not in the similar sector

There is no magic formula for your valuation so it pays well if you network and ask around.