Choose advisors who drive valuation

Your startup’s current valuation is simply the investor’s assessment of its exit valuation multiplied by the probability you will overcome each risk on the way there; thus, a $1B projected outcome and 

  1. a 10% chance of building the right product
  2. a 10% chance of scaling market penetration
  3. a 10% chance of defending your revenue from competitors

…results in a $1M valuation today. Want to double your valuation? Just double your probability as assessed by investors that you have each risk factor under control; these are the “leaps of faith” KPCB’s Randy Komisar so well illuminates:

Randy is actually offering an alternate viewpoint on the Lean Startup imperative to identify assumptions and turn them into facts via the Build-Measure-Learn cycle. Eliminating assumptions eliminates risks, driving the credibility of a higher valuation. Yet Silicon Valley investor Avery Lyford offers us another method to drive the perception of credibility:

How do advisors play into this? What if you are building a search engine and Google’s first recruit, Craig Silverstein, were one of your advisors? What if you are selling into the telecom industry and Cisco co-founder Sandy Lerner were teaching you the ropes? Would your valuation be helped if Mike Seashols, Oracle’s first VP of Sales & Marketing, were advising your enterprise software startup?  These are not the most famous names in show business, but their mere presence mitigates the perceived risks your startup faces:

  1. Their proven eye for the future serves as prognostication thereof
  2. Their reputations are more important than your firm…they will tell the truth to others
  3. They know who to call, and those calls get answered

When you allocate your advisory shares budget, be strategic: identify advisors whose credibility, not to say their guidance and introductions, signal “A-Team”, de-risking your startup and therefore boosting your valuation.