This is hands down the best quant analysis of seed validations I’ve ever read. Thanks for the work on this, will be giving you a shoutout in my next newsletter.
Perhaps seed valuations should be more seen in the light of option valuations. Basically an investment in the seed stage is buying yourself an option for future cashflow. The key drivers for the option are the volatility, interest rate and time of the option. I guess the runway funding it the option period of the company. It is indeed interesting how interest rate therefore doesn't influence the pricing as it would do on an option. Interesting to get corporate finance theory view on this.
I think bundling together all seed stage valuations might not be the right way to approach this. Seed valuations change depending, for instance, on the "wave" that investors are drawn to at that time. For instance, an AI or defense startup would attract higher valuations compared to an NFT startup at the moment.
I agree that early-stage valuations are heavily influenced by the quality of the team, but I would say it's more nuanced than that. Other factors to consider would include the current wave, catalysts that have just occurred (for instance, with Trump in power, I expect higher valuations for upcoming crypto startups), the strength of incumbents (it's harder to fund an Amazon competitor, so valuations might be low), the IP of the startup, the potential of the industry, and more.
Thanks for sharing this insightful blog! Seed Valuation can be concluded to be just an imaginary number thats come to mind of a VC depending on his mood, the weather and other irrelevant things lol.
I agree they’re not valuations… they’re a vote for optimism! The number is more of a triangulation of how much capital the company likely needs to reach a point where they can be properly valued and the % ownership founders need to retain to avoid cap table red flags at investment committee. It’s a bit like the golden ratio – I see the same numbers over and over as a result. Those of us who repeatedly invest at this stage have to remain optimistic that despite market fluctuations, growth will come. We want to capture this and artificial valuations are the cost of getting in early.
This is hands down the best quant analysis of seed validations I’ve ever read. Thanks for the work on this, will be giving you a shoutout in my next newsletter.
Perhaps seed valuations should be more seen in the light of option valuations. Basically an investment in the seed stage is buying yourself an option for future cashflow. The key drivers for the option are the volatility, interest rate and time of the option. I guess the runway funding it the option period of the company. It is indeed interesting how interest rate therefore doesn't influence the pricing as it would do on an option. Interesting to get corporate finance theory view on this.
Interesting and insightful as usual, thank you!
Really interesting
really enjoy reading your essays whenever they come out
This is terrific.
Hello Nnamdi,
I hope this communique finds you in a moment of stillness.
Have huge respect for your work and reflective pieces.
We’ve just opened the first door of something we’ve been quietly crafting for years—
A work not meant for markets, but for reflection and memory.
Not designed to perform, but to endure.
It’s called The Silent Treasury.
A place where judgment is kept like firewood: dry, sacred, and meant for long winters.
Where trust, patience, and self-stewardship are treated as capital—more rare, perhaps, than liquidity itself.
This first piece speaks to a quiet truth we’ve long sat with:
Why many modern PE, VC, Hedge, Alt funds, SPAC, and rollups fracture before they truly root.
And what it means to build something meant to be left, not merely exited.
It’s not short. Or viral. But it’s built to last.
And if it speaks to something you’ve always known but rarely seen expressed,
then perhaps this work belongs in your world.
The publication link is enclosed, should you wish to experience it.
https://helloin.substack.com/p/built-to-be-left?r=5i8pez
Warmly,
The Silent Treasury
A vault where wisdom echoes in stillness, and eternity breathes.
I think bundling together all seed stage valuations might not be the right way to approach this. Seed valuations change depending, for instance, on the "wave" that investors are drawn to at that time. For instance, an AI or defense startup would attract higher valuations compared to an NFT startup at the moment.
I agree that early-stage valuations are heavily influenced by the quality of the team, but I would say it's more nuanced than that. Other factors to consider would include the current wave, catalysts that have just occurred (for instance, with Trump in power, I expect higher valuations for upcoming crypto startups), the strength of incumbents (it's harder to fund an Amazon competitor, so valuations might be low), the IP of the startup, the potential of the industry, and more.
A lot more nuanced!
Thanks for sharing this insightful blog! Seed Valuation can be concluded to be just an imaginary number thats come to mind of a VC depending on his mood, the weather and other irrelevant things lol.
I agree they’re not valuations… they’re a vote for optimism! The number is more of a triangulation of how much capital the company likely needs to reach a point where they can be properly valued and the % ownership founders need to retain to avoid cap table red flags at investment committee. It’s a bit like the golden ratio – I see the same numbers over and over as a result. Those of us who repeatedly invest at this stage have to remain optimistic that despite market fluctuations, growth will come. We want to capture this and artificial valuations are the cost of getting in early.