According to Elizabeth Yin, “your startup’s valuation is not actually about how much your company is worth.”

It's a matter of supply and demand.

1. Supply of your fundraising round
2. Demand from investors

Founders often think that their valuation and progress are linear. Meaning: the more progress you make, the more your company is worth.

But that's not how it works.

Instead, investors think in terms of staircases.

Quick example: Imagine you have an SMB SaaS product. You make $500/mo per customer with 10 customers = $5k/mo in revenue.

If you double your customers for a total of $10k/mo, your valuation isn’t going to dramatically increase.

Nothing new has been learned. Nothing really new has been de-risked or unlocked.

But now let's say that instead of 10 more SMB clients, you get 1 enterprise customer who pays you $5k/mo.

Now it’s getting interesting for investors. Because this shows there’s demand from enterprise clients AND your capacity to serve them.

Even though the revenue is the same in both cases, your startup is de-risked. So you’ll likely have more investors who are interested in investing, and therefore, a higher valuation.

So the relationship between progress and valuation looks more like a staircase. You're on one rung until you derisk or unlock something… and then you go up another rung.