Originally sent to Play Money subscribers · June 2024

Part of our ongoing series on evaluating real-world angel investing scenarios.

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This week, we hosted our first Y Combinator-backed deal on the platform.

It sparked two immediate questions from angels:

• “Are you comfortable with such a high seed valuation?”
• “Why is the valuation cap structured this way?”

Instead of answering only for this deal, let’s zoom out.

How should angels think about high seed valuations — especially in YC and hard-tech deals?

Why Do Seed Valuations Vary Within the Same Round?

Two-tier valuation structures are not unusual.

Here are two common drivers:

1. Fund Ownership Math

Institutional funds often have:

• Check size targets
• Ownership targets
• Portfolio construction math

An early lead may negotiate a lower valuation cap to hit their internal fund return thresholds.

That doesn’t automatically make the higher valuation wrong. It reflects different capital strategies.

2. Institutional Signaling

When a respected VC leads a round:

• It reduces perceived risk
• It validates diligence
• It increases demand

That signal alone can support a higher valuation for subsequent investors.

The real test is not:

“Is the number high?”

The real test is:

“Are real investors writing checks at that number?”

In this case, institutional capital has already committed at the higher valuation. That’s not founder optimism — that’s market clearing.

Is $35M Too High for a Seed Deal?

Context matters.

For hard tech, robotics, and deep infrastructure plays:

• Capital needs are higher
• R&D cycles are longer
• Ownership math looks different than SaaS

How Angels Should Think About High Seed Valuations

Data on seed valuations has expanded significantly over the past decade (see research from AngelList’s Chief Data Scientist, Abe Othman).

Seed is no longer:

• $3M caps
• $5M valuations
• Garage-stage risk

It’s common to see:

• $15M–$25M caps
• Even $30M+ for highly credentialed teams

The key is not anchoring to a historical number.

The key question is:

Can I reasonably see this company being worth at least 20–25x what I am paying?

If the answer is yes — and the capital stack is clean — valuation becomes a strategic decision, not an emotional one.

Valuation Awareness vs. Valuation Anchoring

In my own angel investing, I am valuation aware.

But I am less tied to absolute numbers and more focused on:

• Upside potential
• Capital efficiency
• Team quality
• Market size

All things can be true:

• The valuation can be objectively high.
• The opportunity can still be attractive.
• Different angels can make different decisions.

That’s why we each develop our own angel investing style.

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