I prompted ChatGPT to value a fictional startup
TL/DR Nonsensical and a tad on the founder friendly side, but only a tad :)
Given that Cohort#1 of QAI is working on valuing early-stage startups this week, I created a fictitious case for the members to analyze and value. I then loaded the case into ChatGPT and prompted it to create its own valuation. Below are the results.
First, my prompt:
Please conduct a valuation based on the following information: AIConnect is a cutting-edge AI marketing company that specializes in profile analysis and personalized outbound messaging. The company's AI-powered platform helps businesses optimize their marketing efforts by identifying and engaging with high-value prospects. AIConnect's technology enables companies to deliver targeted messages and content to potential customers, increasing conversion rates and revenue. Here are some additional facts:
Raising $2 million.
The estimated market size for AI marketing solutions is approximately $10 billion.
Annual Recurring Revenue (ARR): $100,000
ARR Growth Rate: 100%
AIConnect has the potential to exit with a valuation ranging from $10 million (low end) to $500 million (high end).
AIConnect anticipates going through four future rounds of capital:
The AI marketing industry is highly competitive, and while AIConnect shows promise, there is still a question as to whether the company has found a strong product-market fit. Customer adoption and retention rates will be critical indicators of success in this competitive landscape.
Chat GPT’s output:
Certainly, here's a hypothetical case for an early-stage AI marketing company seeking a seed round of funding.
Base Valuation: To start, we'll consider the company's current ARR and growth rate to estimate its potential future revenue. With $100,000 ARR growing at 100%, we estimate future ARR as follows:
Year 1 ARR = $100,000 * (1 + 100%) = $200,000
Exit Valuation: Based on market comparables, we have a range of potential exit valuations. Let's use the midpoint for our calculation: ($10 million + $500 million) / 2 = $255 million.
Dilution Factor: In the seed round, AIConnect is seeking $2 million in exchange for equity. Assuming an equity stake of 20% is offered in this round, we account for dilution as follows:
Post-Seed Equity Stake = 80%
Discount Rate: We apply a discount rate of 20% to account for the inherent risks associated with an early-stage startup in a competitive market.
Now, we can calculate the pre-seed valuation:
Pre-Seed Valuation = (Year 1 ARR Exit Valuation) / (Dilution Factor (1 + Discount Rate))
Pre-Seed Valuation = ($200,000 $255 million) / (80% (1 + 20%))
Pre-Seed Valuation ≈ $159,375,000
Therefore, based on the provided information, AIConnect's pre-seed valuation is approximately $159,375,000.
Keep in mind that this is a simplified valuation and doesn't account for all the nuances and variables involved in valuing a startup. Actual valuations can vary significantly based on additional factors and negotiations with investors.