Asher's Blog

When I first entered the startup world, one of the things that amazed me most was how investors valued young companies.

I had understood valuation in the conventional sense. A business had assets, revenue, profits, cash flow and perhaps a long operating history. You examined those facts, made reasonable assumptions about the future and arrived at a value. Then I encountered venture capital, where a company that was barely a few years old—and sometimes barely more than an idea—could be valued at millions of dollars.

At first, it looked almost magical. What I later understood is that early-stage valuation is not primarily a description of what a company is worth today. It is a negotiated price for what the company might become tomorrow. Investors are buying a part of a possible future, and founders are selling a story about how that future will be created.

That does not make the valuation imaginary. Every serious investment contains a view about the future. But it means that a valuation is a promise expressed as a price. And every promise eventually meets a deadline.

The valuation game is different in Africa

Many African founders encounter a very different valuation environment from founders building in more mature venture markets.

Capital is scarcer, investors perceive greater macroeconomic and execution risk, exits are less frequent, currencies can depreciate sharply, and international investors often apply a discount before they have properly understood the business. As a result, raising equity in Africa can be extraordinarily expensive—not only because capital is difficult to obtain, but because founders may be asked to surrender a large percentage of their companies at an extremely low valuation.

The continent’s venture market is recovering, but scarcity still shapes negotiations. According to Partech’s 2025 Africa Tech Venture Capital Report, African technology companies raised about $4.1 billion in equity and debt during 2025. That was a significant improvement on the previous year, but it remains a relatively small pool of capital for an entire continent. Scarcity gives capital bargaining power.

When an investor wants 20 or 30 per cent of a very young company at a valuation that does not respect its potential, I always wonder whether the investor has considered the incentive created by that transaction. A cap table is not merely a record of ownership. It is an incentive system.

If founders give away too much of the company too early, what will keep them committed through ten difficult years? What happens after later rounds dilute them further? What happens when the company encounters a crisis and the founder discovers that creating something new may be more rewarding than rescuing the business everyone else now substantially owns?

Investors naturally need protection and sufficient upside for the risks they take. Founders should not expect money on sentimental terms simply because their idea is ambitious. But a deal can be legally valid and still be economically unwise. A transaction that removes the founder’s long-term motivation may hurt the very investment it was designed to protect.

This is one reason I was thankful to look beyond the local market when I raised my first institutional capital, and why Y Combinator’s decision to back us mattered. It was not merely the money. It was entry into an ecosystem that understood that a young startup should be judged partly by the size of the future it might create, not only by the weakness of its present financial statements.

Yet founders must not misunderstand the generosity of that model. A forward-looking valuation is not freedom from financial reality. It is time borrowed from the future.

Investors buy the future, but the future must arrive

Aswath Damodaran, one of the world’s best-known teachers of valuation, has repeatedly argued that valuation must connect stories and numbers. A story without numbers becomes a fairy tale; numbers without a story become a spreadsheet without meaning.

For a startup, the story might sound like this: the problem is large, our solution is differentiated, this market will grow, our product can become essential, our distribution will improve, margins will expand, and we can eventually serve millions of customers.

The valuation converts that narrative into a price today. But once the money enters the company’s account, the founder inherits a deadline. The deadline may not appear explicitly in the investment documents. It is instead contained in the company’s runway, the investors’ fund cycle, the milestones required for the next round and the expectations created by the last one.

Before that deadline arrives, the founder must produce evidence. If the last round was based on the hypothesis that customers urgently needed the product, retention should eventually prove it. If it was based on the possibility of a large market, customer growth and revenue should begin to demonstrate that scale. If the thesis depended on improving economics, gross margin, contribution margin and cash generation should move in the right direction. If the company promised a technological advantage, the product should become more capable, reliable or difficult to reproduce.

The story does not have to come true exactly as it was first presented. Startups learn, markets move and good founders change their minds when the evidence changes. However, the company must create enough new evidence to support the next story.

That is the deadline: the moment when operating performance must catch up with the future that investors previously purchased.

Every new round reopens the old story

When founders prepare to raise another round, they often concentrate on constructing the new pitch. They want to explain the next product, the next market, the next strategic opportunity and the much larger company they can become.

But a sophisticated investor is also reviewing the old pitch. What did you say the last capital would accomplish? Which hypotheses did you prove? Which ones failed? What did the business learn? How efficiently was the capital converted into customers, revenue, technology, licences, distribution or defensibility? Did the organisation become stronger, or did it merely become larger and more expensive?

Your next valuation is partly a judgment on how responsibly you used the previous one.

This does not mean every target must be met. Forecasts are not prophecies, and a founder who never changes a forecast may not be learning. The important question is whether the company has developed a more truthful and valuable understanding of its market.

A founder should be able to say: This was our hypothesis. This is what the market taught us; this is what we changed. These are the results. This is why the next stage is now more credible than the last one.

That is a much stronger fundraising story than pretending that every original assumption was correct.

A high valuation can become a burden

Founders understandably want the highest valuation they can negotiate. A higher price usually means less dilution in the current round, stronger publicity and a visible signal that the market believes in the company.

But valuation should not be treated as a trophy. If a business raises at a price far ahead of its operating capacity, the next round may become difficult. The company must either grow into that valuation, persuade new investors to accept an even more optimistic story, raise a flat or down round, or find another source of capital. A valuation that felt flattering when the money arrived can become a weight when the company returns to the market.

The problem is not ambition. Great companies are usually built by people willing to believe something that current numbers cannot yet fully support. The problem is failing to distinguish an ambitious forecast from an unsupported one.

The best valuation is not always the highest number available. It is a price that gives the company enough capital to make meaningful progress, preserves founder motivation, treats investors fairly and leaves room for the next round to be justified by performance. In other words, valuation should create momentum, not a trap.

Operational excellence is how the story becomes true

Founders enjoy talking about vision because vision is exciting. Operational excellence is quieter. It appears in reconciliations, controls, reports, treasury decisions, security reviews, customer support, collections, pricing and thousands of decisions that rarely make it into a fundraising announcement.

Yet operations are where valuation is either justified or exposed. This is especially important for founders whose only operating experience has been within their own startup. There is enormous value in having worked inside a strong multinational, an excellent bank or a disciplined technology company because you see what reliable systems look like at scale. Founders without that experience must acquire it deliberately: by hiring experienced operators, listening to experts, studying excellent companies and building management systems before a crisis makes them unavoidable.

I once observed a financial technology company that made funds available to its customers immediately while accepting settlement from a payment partner on a T+1 basis—the following business day. In practice, the company was using its own liquidity to bridge the gap between when customers received money and when settlement arrived.

That arrangement may be manageable when volumes are small and every transaction behaves as expected. At scale, however, it creates liquidity exposure. Settlement delays, reversals, fraud, partner failures or a sudden increase in withdrawals can turn a seemingly ordinary operational choice into an existential problem.

This is why a founder must keep asking: where is the leakage? Where is the hidden mismatch? Which process works only because volumes are still small? Which obligation have we assumed without pricing its risk? What happens if a partner fails tomorrow? What happens if revenue falls, customers withdraw faster than expected, or the exchange rate moves sharply against us?

Excellence is not believing that something will go wrong. It is accepting that something can go wrong and designing the company so it can survive.

For a financial company, that means daily reconciliation, not occasional reconstruction. It means understanding settlement timing, safeguarding customer funds, monitoring fraud, separating operating money from money held for customers, maintaining liquidity buffers and ensuring that growth does not create obligations the balance sheet cannot carry.

For other startups, the details will differ, but the principle remains the same. Know where money enters. Know where it leaves. Know what you owe and when it becomes due. Know the assumptions on which your margins depend. Know which customer cohorts are genuinely profitable. Know whether growth generates cash or consumes it.

The pitch deck tells people what you believe. Operations reveal whether the company can carry that belief.

Your financial statements must eventually tell the same story

At the beginning, investors may place extraordinary weight on the founder, the size of the market and the possibility of the product. As the company matures, the financial statements become increasingly difficult to talk around.

The income statement should show whether revenue is becoming meaningful and whether the cost structure can eventually support profit. The balance sheet should reveal the strength or fragility of the company at a particular moment. The cash-flow statement should explain the truth that accounting profit alone cannot: whether the business is actually producing cash, where cash is being consumed and how long the company can continue under present conditions.

A founder does not need to become the company’s accountant, but a founder who cannot read these statements is operating with partial sight.

Review revenue and costs frequently. Examine cash flow every month, and more often when liquidity is tight. Reconcile accounts daily where the business handles payments or customer money. Track receivables, because recognised revenue that cannot be collected will not pay salaries. Understand the difference between gross profit and cash in the bank. Know the company’s runway under a realistic case, not only under the plan in which everything goes well.

Most importantly, keep looking for ways to generate more cash from genuine customer value. Raise prices where value supports it. Improve collections. Remove waste. Increase retention. Sell more to customers who already trust you. Stop subsidising activities that create impressive usage but poor economics. Build products people will pay for, not merely products that make the company look active. This is not small thinking. Cash gives ambition endurance.

The founder must manage two stories

Every venture-backed founder is managing two stories at once. The external story explains why the company can become important. It attracts investors, employees, partners and customers. It requires imagination, conviction and the ability to help other people see a future that does not yet exist.

The internal story explains what is actually happening. It lives in retention, revenue quality, cash flow, product reliability, customer complaints, employee performance, reconciliations and risk. It requires honesty, discipline and the courage to face facts that may weaken the external narrative.

The company becomes dangerous when those stories separate. If the founder becomes better at raising expectations than creating value, valuation can conceal weakness for a while. More money can extend the deadline, fund publicity and make the organisation appear successful. But it cannot permanently settle the contradiction between the story and the business.

The best founders do not abandon storytelling. They make the internal company worthy of the external story.

Build leverage before you return to the market

One of the most useful ways to think about fundraising is that you should raise from a position of leverage whenever possible.

Leverage can come from revenue, strong retention, improving margins, valuable licences, technological progress, a major enterprise customer, a repeatable sales motion or enough cash to walk away from a poor offer. It comes from having evidence that the company is creating value and options that reduce desperation.

Desperation is expensive. When salaries are approaching and the bank balance is disappearing, valuation becomes less philosophical. The founder may accept terms that damage the cap table, weaken control or create impossible expectations simply because the alternative is to stop operating.

This is why runway must be managed before fundraising becomes urgent. The purpose of cash-flow discipline is not merely to keep the company alive for another month. It is to preserve the founder’s ability to make intelligent choices.

The story you tell investors is stronger when the company does not need them to rescue it.

A practical valuation test

Before accepting a valuation or presenting one to investors, I think founders should ask a few direct questions:

1. What future does this valuation assume? Be specific about the market, product, revenue, margins and strategic position embedded in the number.
2. Which milestones must we reach before the next financing? A valuation without measurable milestones is merely a mood.
3. How much time does this capital actually buy? Use realistic operating costs and include room for delays, currency movements and failed experiments.
4. Will the founders and essential employees remain properly motivated after this round and future dilution? Ownership should sustain commitment over a long journey.
5. What must become true for the next investor to pay a higher price? If the answer is simply that the market will become more excited, the foundation is weak.
6. What could break the story? Identify liquidity mismatches, regulatory exposure, security risks, customer concentration, weak retention and dependence on a single partner.
7. What evidence will we inspect every week or month? The board deck should not be the first time the founder discovers what is happening in the company.
8. Can our financial statements eventually support the narrative? Revenue quality, margins, cash flow and balance-sheet strength must ultimately carry the valuation.

These questions do not eliminate uncertainty. Startups exist precisely because the future is uncertain; they ensure that optimism is accompanied by responsibility.

The deadline is not your next pitch meeting

It is tempting to think the deadline attached to a valuation is simply the date of the next fundraising round. It is deeper than that.

The true deadline is the point at which the business can no longer rely on belief alone. It is the moment customers must keep paying, unit economics must begin to work, controls must withstand pressure, the organisation must execute and capital must produce something more valuable than itself.

Sometimes the deadline arrives because the runway is ending. Sometimes it arrives because the market changes. Sometimes a regulatory event, currency crisis, security incident or failed partner brings it forward without warning.

That is why founders should operate with urgency even when the bank account is healthy. Look for leaks while things are going well. Examine reports before a crisis forces you to. Reconcile every day. Review cash flow. Improve security. Ask uncomfortable questions. Bring experienced people into the room. Generate cash wherever you can create legitimate value.

A valuation is not a verdict that your company has succeeded. It is an agreement that your story deserves time and capital to be tested.

Tell a courageous story. Negotiate a fair price. Protect the incentives of the people who must build the company. Then operate with enough excellence that, when the deadline arrives, your results can tell an even better story than your pitch did. —

References and further reading

• Partech, 2025 Africa Tech Venture Capital Report.
• African Private Capital Association, 2025 Venture Capital in Africa Report.
• Aswath Damodaran, Narrative and Numbers: The Value of Stories in Business.
• Paul Graham, “Default Alive or Default Dead?”.
• Ben Horowitz, The Hard Thing About Hard Things.