The range for early stage valuations is probably broader than I have seen it since the first Internet bubble. I am aware of raises at the moment all the way from pre-moneys of below $2 million to $50 million. These are all early-stage pre-revenue companies but with launched services.
What accounts for the huge range? There are of course the usual factors, such as the strength of the team and the potential size of the market. But the real driver seems to be whether a company is perceived as being the (potential) leader in its area. It appears that most venture firms have concluded that on the Internet, especially for consumer facing companies, there is a strong winner-take-all effect.
There is clear evidence that the leader can be one or several orders of magnitudes larger than the number two. With those dynamics, it makes sense for everyone to try to get into a company that could be the winner. If it turns out to be the winner, almost any price will make for a good investment. Conversely, investments in the number two or three company in an area will at best do OK even if they are reasonably priced. Never mind investments in companies even further down the list.
All of this will set off some interesting outcomes. Not all the perceived winners will in fact turn out to be the number one which will make the valuations seem crazy after the fact. And some investments will turn out to have been bargain priced.
