I’m in a Manchester coffee parlour. With an emphasis on sharing their craft, ritual and passion, the atmosphere is thickly pleasant with the aroma of roasted beans. They charge fiercely for oat milk with a splash of espresso from a mesmerising menu and offer a bewilderingly wide range of specialty coffees. An Ernest Hemingway look-a-like sits in the corner.
I’m in a four-seater booth, waiting to be pitched by an ebullient startup founder. I don’t know why I’m here really, I’m unexcited if not confused. The founder has got off on the wrong foot with me, his constant over-the-top belligerent full throttle style on email and zoom to date has no pause let alone off switch.
Across from me is – well let’s call him Jackson. His hair style screams I slept four hours last night, and his black turtleneck is so tight it looks like a second skin. Actually, he’s not sitting; he hovers slightly above his chair, vibrating at the frequency of a man who had substituted solid food with adaptogenic mushrooms and pure ambition.
I suspect I possess the weary, half-lidded gaze of a man who had heard the phrase Uber for X four times already this week. As with many founders I admire his determination, but not his mathematics. His valuation is a massive stumbling block. An iPad lay before us, a single word on the screen: Omni.
Jackson began, his voice dropping into a rehearsed, dramatic baritone. I’m not here to sell you a product. Products are static. Products are shackled by the laws of supply and demand. I am here to offer you a piece of the future: Omni. A slice of an infinite self-refuelling market. He laughed nervously, a sharp, barking sound that caused a nearby customer to jump and almost choke on her almond bagel. We are in stealth mode. We are a paradigm shift. We are raising a £2m seed round at a £10m post-money valuation.
I didn’t blink. I didn’t spew coffee out of my mouth. I didn’t burst out laughing. My eyes, trained by a decade of hearing inflated valuations, remained perfectly level and in contact with his. Okay. That’s toppy. Walk me through the maths, because per your last email, your monthly recurring revenue is nil. That’s more than the x90 revenue multiple of Space X!
A common trap, Jackson said, leaning forward, his eyes widening with the manic zeal of a prophet. You’re looking at revenue. Revenue is a trailing indicator of legacy value. I’m pricing on Potential Addressable Reality. Jackson tapped the iPad. A slide flashed on the screen with a single equation in a font looking suspiciously like Star Wars typography, and moved across the screen like the film intros:
V = \frac{(A \times M)^E}{\text{Fear of Missing Out}}
Let me break down my unique valuation model to help you understand, he said, gesturing at the screen. We start with A, the Total Addressable Market. The global market is $1.4Tn. I was about to ask a question to reign in his runaway horse, but he carried on without drawing breath.
Next, we multiply by M, the Metaphysical Multiplier. Because Omni isn’t just a physical thing, it’s a concept protocol. Finally, we raise that to the power of E, which stands for Elon. I’ve sent him our deck and connected on Grok. I love his Space X logo and merch. If he becomes an investor even contextually, our brand equity escalates exponentially. He reminded me of the late Robin Williams, the comedy GOAT with rapid-fire speech. Jackson’s style was a non-stop random stream-of-consciousness, a barrage of manic, apparently high-speed improvised words.
And the denominator, FOMO coefficient? I asked. Jackson whispered, As your fear of missing out approaches zero, our valuation approaches infinity. It’s simple calculus. If you validate our valuation using accounting principles, you’ve already lost the narrative. Cashflow is for founders that have given up dreaming.
Even if I buy into the… metaphysical aspects of the story, your pre-money valuation is £8m. You have one potential customer contract. What is your defensible moat? He smiled. Our moat is that we don’t actually exist yet, nor does our market he said triumphantly.
I paused, with 20 years dabbling in startups I was obviously stupid and missing the point. Think about it, Jackson urged, Omni is pure innovation. We’re an Asynchronous Venture. Our scalability is infinite. Therefore, our valuation must reflect this lack of friction. If a company with assets is worth $10m, a venture untethered from the physical world must be worth ten times. Earth is the cradle of humanity, and you cannot stay in the cradle forever.
I pulled out my Moleskine notepad. I like the tactile feel of paper; it reminds me of a time when valuations were tied to quaint concepts like profits and cash. Let’s talk about the unit economics of the future. I too could play buzzword bingo. Your LTV is calculated assuming every customer stays subscribed for twenty years?
Correct, Jackson said without a hint of irony. I stared at him, genuinely trying not to let my jaw drop, trying to decide if I was hallucinating from a coffee overdose or this was an out-of-body experience. And that justifies an £8m valuation? I asked. Of course! A partner at Andreessen Horowitz emailed me to say we were dangerously conservative and the message included an emoji of a rocket. I don’t need to tell you what that means in terms of term sheet momentum.
He closed the iPad with a soft, dramatic click. He leaned back. The moment of truth had arrived. The air between us crackled with the tension of a high-stakes game of snakes and ladders. I’m offering you the opportunity to lead this round, his voice dropping to a conspiratorial whisper. I’m willing to give you a £1m stake at our very reasonable valuation. In just five years, that will be worth more than the GDP of a small European nation. You aren’t buying equity. You are buying a seat on the ark.
I looked down at my Moleskine pad. I’d circled the word ‘FOMO’ in Jackson’s valuation model. I thought about my wife, who had told me that morning we needed to redecorate the attic room after a squirrel infestation and we needed the cash. I sighed heavily, a sound that carried the weight of a thousand inflated tech bubbles. Let me think about it over the next few days. He didn’t hesitate. He stood up, extending a hand. Ian, you’ve just bought yourself a piece of infinity.
As we shook hands, the barista called out, Large oat milk latte for Jackson? Your card was declined, by the way. Jackson didn’t flinch. He turned to me with an unbothered smile. Could you cover this? It’s a temporary liquidity crunch. I smiled and handed the barista cash. After all, what was seven pounds when you were already worth $10m in the future?
Summary. Startup valuation is more of an art than a science. However, it isn’t arbitrary. I use specific principles to estimate what I think a new venture is worth. None of them were in the Harry Potter book of startup valuation magic spells that Jackson had used.
Valuation is never decided in a vacuum, it’s balancing founder dilution with the company’s future fundraising needs and milestones. An early high valuation isn’t always a win. The ideal valuation is the highest price that still allows you to double or triple the company’s value before you need to raise capital again.
Early-stage valuation isn’t maths, rather a blunt proxy for trust. When angels price a round, we are mostly pricing a founder’s judgment, credibility and future risk of embarrassment. The spreadsheet is just the excuse we use to make it respectable. Most founders do not want to hear this. They prefer the idea that valuation emerges from analytical rigour, that if they can explain the logic clearly enough, the number will move. That belief is understandable. It is also wrong.
I have watched founders defend a price with genuine belief and intensity. If a founder insists on a number that requires perfect execution to justify, they are telling me how they plan to operate: in denial. I am happy to let someone else learn that lesson. They say things like This is what the market is paying – but what they are really saying is that they do not understand what the market is buying.
Investors are not buying certainty, rather exposure to potential upside through people we don’t know or trust yet. Valuation is how we express that trust – or the lack of it. Higher valuation does not equal validation. It equals higher expectations.
So, what happened next with Jackson?
His email was polite. Slightly strained. Two attachments. A spreadsheet. A memo explaining why the valuation was, in his words, only fair. This came after a call where I had said I could not get close to his number. He thought he was continuing the negotiation. What he was actually doing was giving me more data than any due diligence ever could.
I did not argue with the numbers. I did not push back. I thanked him for the details. Then I quietly marked the deal ‘not for me’. Not because of the valuation. Because of him. Here is the part founders tend to miss. The harder a founder argues about valuation, the more they reveal about how they will behave under pressure. It is not about being assertive per se, but about what kind of assertiveness shows up.
Tone matters. Framing matters. Instinct matters. I passed because the valuation discussion felt like a preview of future board meetings. Defensive. Pedantic. Unaligned. Jackson was more concerned with winning the point than understanding the risk I was underwriting. That is not a pricing issue. That is a trust issue. I discount founders I do not trust.
We say the valuation is stretched, the timing is off, we want more traction. What we mean is something else: I do not want to be associated with this person. Every experienced angel I know does this, we just do not say it out loud. Equally, when a founder frames valuation as a moral argument about ‘fairness’ as Jackson did, that is not a trait I want amplified with my capital.
Watch what happens when you push back gently on valuation. Not aggressively. Not dismissively. Just enough to create friction. Do they get curious, adjust their thinking or do they escalate? Escalation is expensive. I once told a founder their number assumed a distribution advantage they had not yet earned. They replied with a ten-page memo explaining why I was wrong. It was well written. It was also the last communication we had.
Valuation debates are credibility tests disguised as math problems. Founders who treat them as puzzles to be solved usually fail them. Founders who treat them as signals to be read often do not even realise they passed. I am not offering advice here. I am describing behaviour. You can argue with it, but the next time a valuation feels inexplicably rich, ask yourself what is actually being priced?
Because from my perspective, the number is rarely the issue. It is a judgment call about who we trust when the story stops working. I judge people through balanced reasoning, seeking light in a dark labyrinth filled with capricious tension. Jackson showed no self-awareness.
I enjoy discussing startup growth strategies, and make an investment go/no-go call on founder mindset revealed by personality, character and attributes displayed in face-to-face conversations. I give just a light touch, cursory glance to the spreadsheet. I like founders to be rawly open, honest and grounded individuals who avoid hyperbole, lead with radical candour and intellectual honesty.
I find these founders respect investor’s intelligence, experience and the gravity of an early investor allocating them capital. After all, we do not back ventures, we back self-aware founders whom we trust to navigate the future storm.