Today during TechCrunch Disrupt, Michael Arrington led a discussion between a panel of angel investors. There was a ton of good content, but one thing that sticks out as particularly interesting is the way 500 Startups’ Dave McClure thinks about valuations. He has what he calls “million dollar points” — and there are five of them.
McClure brought them up when a question from the audience asked how the investors set valuations for early stage startups. Other panelists had less concrete answers, and Mike himself said worrying about valuation is not something that’s good to hear from an entrepreneur’s mouth. But McClure is practical, and realizes there needs to be a concrete way to think about valuations at any stage.
Here are his five key points:
1. Market
2. Product
3. Team
4. Customers
5. Revenue
Each of those is worth around a million dollars in McClure’s mind in early stage investing — assuming each of them are nailed, of course.
This will undoubtedly be a somewhat controversial way of thinking. Though there’s no question that it’s better than the alternative Mike suggested: “pulling a number out of your ass”.