Valuation. It’s the number every founder fantasizes about and every investor interrogates. But let’s get real—this isn’t just about numbers. A startup’s valuation is a modern-day fairytale: a mix of hard data, wild visions, delusions, egos, and sheer conviction in what a company could become.
Picture that one hypeman at a party who’s convinced he’s Jesus, waiting to ascend as the beat drops. Now imagine a hundred million founders believing their company is the chosen one, destined for unicorn status. If that doesn’t smack you with a reality check, then I haven’t done my job yet.
Valuation is Psychology, Not Math
Investors aren’t just crunching numbers; they’re placing bets on narratives. They’re wired to chase upside, just like the rest of us. If you don’t understand that, you’re already losing.
Humans Are Hardwired to Gamble on Reward
We’re all suckers for a big win. Prospect Theory, coined by Kahneman and Tversky, proves that humans—yes, including the ones writing you checks—overestimate potential gains and underestimate risk. Their research found that people feel the pain of loss 2.25 times more intensely than the pleasure of an equal gain. Yet, when the upside is massive, we throw logic out the window and go all in.
That’s why VCs get hyped over high-risk, high-reward startups, especially when the narrative is compelling enough.
80% of venture-backed startups fail to exit or return capital.
65% of VC-backed companies fail outright.
Only 0.00006% of startups become unicorns.
Yet, VCs keep throwing money in because when it works, it really works.
Framing the Bet: Why Founders Who Sell Dreams Win
It’s not what you say. It’s how you say it.
Prospect Theory teaches us that framing changes everything. Investors chase exponential growth, not incremental wins. That’s why pitches about market domination or industry disruption get checks signed, while safe, stable growth stories get ghosted.
Your job? Shape the narrative. Sell the potential while proving you can execute. Give them a reason to bet big.
The Real Ingredients of a Startup Valuation
Forget the fairytale. Let’s talk about what actually moves the needle.
1. Business Model
First to Market: High risk, high reward. Big vision, unproven execution.
Copy-Cat: Low risk, high reward. Replicating proven models in new markets (think Rocket Internet).
2. Market Potential
If the market is big and untapped, your valuation goes up. Even modest revenue looks sexy if the scalability is obvious.
Startups in a $1B+ market size get valued 30-50% higher than those in smaller markets.
A $100M ARR in a $10B+ market commands 2-3x the valuation of the same ARR in a $1B market.
3. Traction
Nothing speaks louder than real proof—users, revenue, partnerships, MOUs. Show that people care.
Startups with early revenue traction ($1M+ ARR) are valued 2.5x higher than pre-revenue startups.
A 10% MoM growth rate can double your valuation in a single year.
4. Strategy & Channels
How are you getting customers? What’s your roadmap? A half-baked go-to-market strategy is a red flag.
5. Competitive Advantage
What makes you hard to kill? Moats = premium valuations. Whether it’s proprietary tech, brand loyalty, or network effects, investors pay more when replication is hard.
Companies with strong network effects are valued 3-5x higher than those without.
6. The Numbers That Matter
Revenue Growth Rate: 50%+ YoY? That’s how you grab attention.
CAC vs. LTV: The magic ratio = 3:1. Below? You're bleeding cash. Too high? You’re not spending enough.
Burn Rate: Are you fueling growth, or just burning cash on salaries and office slides?
Runway: Cash equals control. A longer runway buys time, but efficient spending builds trust.
Exit vs. Profitability: What Investors Actually Care About
For most investors, exit > profitability.
95% of VC returns come from just 5% of investments.
Unicorns account for 60% of all venture capital portfolio returns.
Your valuation story needs both—show them a clear path to scale and a payday at the end.
The Dangers of Drinking Your Own Kool-Aid
Inflated valuations feel like a flex—until reality kicks in.
For Founders:
Down Rounds Kill Credibility: Raising at a lower valuation later? That’s a death sentence.
Pressure Cooker Growth: Sky-high valuations force desperate, unsustainable decisions.
Burnout is Real: Overpromising leads to dumb moves and bad leadership.
For Investors:
Diminished ROI: Overpaying today means a weak exit tomorrow.
Loss of Trust: Investors hate being sold a dream that doesn’t deliver.
Exit Nightmares: An inflated valuation makes future exits a painful negotiation.
Beyond the Numbers: The Fairytale Factors
Team – Investors bet on people, not just products. They’re buying your execution skills.
Storytelling – Numbers inform. Stories sell. Make them believe.
Timing – Market shifts can 10x your valuation overnight. Timing is a cheat code.
Vision vs. Execution – Bold vision with realistic execution is the sweet spot.
Valuation is a Gut Game—Master the Balance
The best valuations blend hard data with gut instinct. Investors don’t just bet on businesses; they bet on founders with conviction.
The Gamble and the Odds
90% of startups fail.
50% of Series A startups fail to raise a Series B.
Only 0.5% of startups raise a Series C.
Only 16% of startups that raise a Series A ever make it to an IPO or acquisition.
VCs don’t play fair odds—they play asymmetric bets. Success in this game is about calculated risk. Founders who master the balance between dream-selling and hard execution win.
The Real Lesson? Slow the F* Down and Think.
In a world of hype and noise, taking a breath can save you millions.
Founders: Outline risk, reward, and reality clearly. Don’t just chase headlines.
Investors: Cut through the BS. Numbers over narratives, always.
Focus on Real Value.
Understand the investor mindset. Control the story. Stay sharp. Ignore the noise. Because 95% of what you hear in this game is delusion, from both sides.
We’re all living in a Wonderland of inflated expectations and grandiose dreams. The real winners? The 5% who cut through the illusion and execute.
Yala hope to see you at the top!
Best,
Wees Abraham MP.
Elekron Ventures.
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