This post was originally published by John Ryu on Medium
I wrote a post here awhile back titled “Valuation As A Coordination Device” but given the conversations today around valuations, I think it makes sense to highlight something I said in that post:
My response was to forget about that $5 million as valuation and to think of it more as a coordination device…
If everything goes the right way, what do you think the value of this startup will be 12 months from now?
And if you believe in the vision and potential growth trajectory, what does the ownership [and financing] of the company have to look like today so that everyone who has to be involved to enable it will be happy and motivated?
tldr: It’s helpful to think of a valuation as a coordination device that reflects the present state of a future high risk/high reward scenario playing out that makes everyone involved happy.