3 ms·
i invest $1mm in your company for 20% -- the company is six months old and this is the first investment of outside capital -- a week later you sell the company
by bconway 16y ago
i invest $1mm in your company for 20% -- the company is six months old and this is the first investment of outside capital -- a week later you sell the company for $2.5mm -- you get $2mm for six months work -- i get a $500k loss
does that sound fair? -- no it does not -- that is why there is a liquidation preference -- to protect investors from that happening to them
A founder selling a $5+ million company for $2mm probably has a reason for trying to get out (like catching the start of the spiral before there's nothing left). Would you prefer the company be scuttled and a $1mm loss instead?
- gfodor 16y agoYou need to realize early stage valuations are basically a guidepost for negotiations, not a real monetary amount people have committed to pay for a company. By comparing your valuation to other valuations of companies at similar stages, both parties can be sure they are getting a fair shake. This has little to do with the idea of the company being sold, in full, for that amount. If you're a founder, and you are getting some traction, it might very well be that you can raise money at a $5mm valuation with little more than a prototype and a few initial adopters. However, if you all of a sudden have a chance to turn your fledgling startup into $2mm in the bank, after only a few months, many would take it and use that money for the next startup.