How should I calculate valuation?

The potential of the opportunity, the management team, and how much value the current investors bring combine to determine valuation.

The only fair way to determine this is by a 3rd party transaction; but since we don't invest in a company that is about to be bought, we have to take similar metrics and apply them to a particular company.

When using another company to base your metrics, however, you're falling into the success bias. Only the companies like yours that have survived are available to use as metrics. And of those companies that have survived, only the successful ones are the ones for which you will have access to the metrics and numbers. So realize that while you may be along a similar path as an E-bay or an Amazon, there are hundreds of other companies on your same path that have died off. Investors have seen a lot of similar companies, and have invested in some of the failures. Their point of view will be tinted towards a holistic view of the space.

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