How Early-Stage Startups Should Value Themselves Using Market Benchmarks and Strategic Positioning

Early-stage startups often struggle to determine their valuation, but Abraham Hidayat, Managing Partner at Skystar Capital, reveals that practical, data-driven methods exist—starting with simple price-to-sales shortcuts and grounded in real market benchmarks.

How to Use Price-to-Sales Shortcuts for Early-Stage Valuation

The most common shortcut for early-stage startups is the price-to-sales (P/S) multiple. It’s simple: take the company’s annual revenue and multiply it by a multiple based on comparable startups or recent transactions.

"Price to sales, the most common shortcut. Just take your annual sales and multiply by a multiple—5 times, 6 times, 3 times. It depends on comparables or recent transactions."

This method works because early-stage companies often have minimal or no profits, making revenue a more reliable indicator than earnings. However, the multiple isn’t arbitrary—it’s shaped by what’s normal in the market. For example, a friends-and-family round might value a startup at 500 million to 1 billion rupiah, while a seed round could range from 2 to 5 million rupiah.

Why Early-Stage Revenue Isn’t the Whole Story

At this stage, revenue is usually small—typically under 10 to 15 million rupiah per year, or even less. The business may still be testing pilots, acquiring early customers, or refining its product. So revenue isn’t a strong signal of future success yet.

"At early stage, revenue is almost similar—maximum I’d say 10 to 15 million rupiah per year. It’s not very different across startups."

This similarity means founders can’t rely on revenue alone to justify a high valuation. Instead, they must prove they’re solving a real problem in a large market and have a clear path to growth.

Using Public Market Multiples as a Benchmark

Once a startup starts generating consistent revenue, investors begin comparing it to public market multiples. These are the benchmarks used by publicly traded companies in the same sector.

"When a startup generates revenue, it gets benchmarked against public market P/S multiples."

For example:

• Hardware components: ~2x sales
• Services: ~1x sales
• E-commerce: ~1 to 2x sales
• Support and maintenance contracts: ~1x sales
• Software services: ~1x sales

These numbers aren’t fixed rules but reference points. Skystar Capital uses them as a starting point, but also looks at recent acquisition or investment deals in the same sector to refine the valuation.

Why Recent Transactions Matter More Than Public Data

Public market multiples are useful, but they’re often outdated. The real insight comes from recent private transactions—especially those involving startups similar in size, stage, and sector.

"We look at recent M&A or investment deals. That’s what we use as a real benchmark."

This internal data—what Skystar has seen in its own portfolio or in the broader market—is often more accurate than public averages. It reflects current investor appetite, risk tolerance, and what’s actually being paid in today’s market.

How Investor Returns Influence Valuation

Valuation isn’t just about the startup’s performance—it’s also about what investors expect. Skystar Capital, like all funds, must deliver returns to its own investors.

"We need to generate returns. We invest with the hope that the company grows, and we can sell it later at a higher valuation."

This means each funding round must be structured so that, over time, the fund can achieve its target return—typically 5 to 10 times the initial investment.

The Hidden Impact of Dilution

Founders often focus on the headline valuation, but dilution erodes that value over time. If a startup raises money at a 2.5 million rupiah post-money valuation and later raises a Series B at 50 million rupiah, it might look like a 20x increase. But due to dilution, the actual return to investors is much lower.

"Even if the valuation looks like it went up 40 times, because of dilution, the investor’s multiple is only 12 times."

So, while the company’s value may grow rapidly, the investor’s return is reduced by each new round of funding. This is why investors are cautious about overvaluing early-stage startups—especially if the company can’t grow fast enough to justify the high valuation.

How Market Size and Differentiation Shape Valuation

The biggest factor in setting a high valuation isn’t revenue or growth—it’s the size of the market and the startup’s ability to capture a meaningful share.

"We start from the addressable market. The bigger the market, the bigger the potential."

To assess this, Skystar looks at:

• Total addressable market (TAM): What’s the total spending in the sector?
• Serviceable available market (SAM): How much of that can the startup realistically reach?
• Competitor landscape: Are there many players? How differentiated is the startup’s offering?
• Confidence in execution: How sure are we that the startup can capture its target share?

Real-World Examples of Market Capture

• Gojek: Dominates ride-hailing and food delivery in Indonesia—think of it as having a large share of the pie.
• Traveloka: Controls 30–50% of hotel and airline bookings.
• E-commerce: Even the largest players capture only 5–10% of total commerce.

"Most startups struggle to get more than a small slice of the market."

This reality means that unless a startup is truly unique—either by being first in a niche or creating a completely new category—it’s hard to justify a high valuation.

The Power of Blue Ocean Strategy

If a startup is doing something no one else has done—like being the first trampoline park in Jakarta—it can command a premium valuation.

"If you’re the first, we’ll think: What’s the target market size? How often do they come?"

This is where bottom-up market sizing comes in. Instead of starting with total market size, you start with the number of potential customers and how often they’ll use the service.

For example:

• How many people in Jakarta would visit a trampoline park?
• How often do they go—once a month, once a year?
• What’s the average spend per visit?

This data helps build a realistic revenue forecast and supports a justified valuation.

Choosing the Right Multiple and Negotiating with Investors

There’s no single formula for valuation. Skystar uses a combination of:

• Price-to-sales shortcuts
• Public market multiples
• Recent transaction benchmarks
• Market size and growth potential

"We apply and mix these methods to arrive at a valuation."

But the final number isn’t set in stone. It depends on negotiation—and that’s where the art comes in.

Why Not All Investors See the Same Value

"It’s not that one investor will say ‘this is the price.’ Another might see it differently."

Some investors, especially strategic ones—like mall operators with venture arms—may pay more than market rate. Why? Because they see value beyond the financials: a partnership, a channel, or a new customer base.

"Maybe a mall operator sees you as a way to attract foot traffic. They’re willing to pay a premium for that."

This is why founders should not settle for the first offer. They should explore different types of investors—especially those with strategic interests—because they may be more willing to pay a higher valuation.

Key Takeaways

• Use price-to-sales multiples as a starting point, but base the multiple on real comparables, not guesswork.
• Public market multiples are useful, but recent private deals are more accurate for early-stage startups.
• Dilution reduces investor returns—so avoid overvaluing early to prevent future funding problems.
• Market size and differentiation are more important than current revenue in justifying a high valuation.
• A blue ocean strategy—being first in a niche—can justify a premium valuation, especially with bottom-up market sizing.
• Negotiation is key: different investors see different values, so explore strategic partners who may pay more than market rate.