Comparable transactions are a great benchmark for founders and investors and one way to get comfortable with a startup’s valuation as it is raising capital. There are many ways arrive at valuation and a range of values using multiple methodologies often provides more comfort than a fixed number extended out to various decimal places.
In a nascent market like Lima, building trust between founders and investors is essential and angel investors will need multiple reference points in order to be comfortable with valuation levels of startups. Most valuation exercises use various methods or inputs in order to arrive at an acceptable range.
The comparable transaction methodology seeks to group transactions of companies of similar size, sector and geography. In the case of startups, stage is also essential. We don’t have a large sample size of comparable startup transactions in Lima, but PECAP has put together a report that does provide some input on current valuation levels. The latest Q4 report notes that the median seed road in Lima is $350,000 at a pre-money valuation of $1.9M for 16% of the equity in the startup.
This data is taken from startup seed rounds in Lima raising from primarily Peru-based investors. For startups with a regional or global client base or which are raising from money international investors, it makes sense to incorporate other comparable transactions outside of Peru.
Founders can consider that since these are median figures for Lima, founders raising larger rounds at higher valuations will likely need to provide some justification for the premium compared to the median level, and the round may take longer to raise.
Most startups will raise multiple rounds of capital at different valuations. Founders and investors can keep in mind levels of prior and potential future rounds when evaluating seed round valuations. Investors expect a valuation increase, often 1.5x-3.0x, from one round to another.
Early stage accelerators in Lima have typically proposed valuation caps around $500,000 and, later on down the road, Series A investors in Latin America may look for valuations below $10 million. A seed round somewhere in the middle of these levels will put the startup in a good position to align current and future investors. The current median level for seed rounds in Lima as reported by PECAP falls within this band.