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This is pretty short-sighted though. The definition of "doing well" is relative to the last round's valuation, regardless of business fundamentals. So if your
by stanleydrew 9y ago
This is pretty short-sighted though. The definition of "doing well" is relative to the last round's valuation, regardless of business fundamentals.
So if your company is actually worth $100M, but you raise $150M at a $1B valuation with a 1x preference, you would get nothing if the company sells for $150M later that year. That would have been a 50% return on the actual true company valuation, had you actually raised at that.
This is an extreme example but hopefully you get what I'm saying.
- robocat 9y agoIn your example the company has lost $100M, not gained 50%... E.g. company has $100M cash and no other assets, receives $150M cash, then later sells company for $150M.
- stanleydrew 9y agoYes, that's my point. The company "didn't do well" by the standards of the previous round they raised. But had they raised a round that valued them more appropriately, they may have "done well".