4 ms·

Why is he so adamant about not communicating a valuation? Is it because if you don't give one, there's a chance the VC will value you higher than the valuation

Why is he so adamant about not communicating a valuation? Is it because if you don't give one, there's a chance the VC will value you higher than the valuation you would have communicated?

ivankirigin 17y ago
Generally, a negotiation around a number will go more in your favor if you don't say a number first. Another view is that you should raise a level appropriate for your growth plans, and set the valuation based upon the control demands of the VC. Control is more important than valuation.
beninato 17y ago
Hi Jack, Great question. It's pretty complicated, but I think naming a valuation can only lead to problems. Bottom line: it's not your job as an entrepreneur to value your company. It's up to the investor to "make the offer" in most cases. Angels and VCs are professional negotiators. Most entrepreneurs are not. They see thousands of companies every year and can very quickly assess the value of your company. I have seen situations where an entrepreneur shoots himself in the foot by stating a valuation that is lower than the VC had in mind, as you suggest above. But the reality is that the "market" will value your startup. If 3 VCs want to fund it, it's probably worth more than you thought. If 0 VCs want to fund it, it's probably worth less than you thought :( I think it's best to let the investors compete and the interest level drive the valuation of the company. If asked for a valuation by a potential investor, my suggestion to entrepreneurs is to say "We'd like to raise $X. We're realistic about valuations these days, so you don't need to worry that we want $20 pre. But we're going to let the market decide the valuation." Most investors respect that response from what I have experienced over the years.
sehender 17y ago
He who speaks first, loses.

4 ms·

Why is he so adamant about not communicating a valuation? Is it because if you don't give one, there's a chance the VC will value you higher than the valuation

by jack7890 17y ago

Why is he so adamant about not communicating a valuation? Is it because if you don't give one, there's a chance the VC will value you higher than the valuation you would have communicated?

ivankirigin 17y ago
Generally, a negotiation around a number will go more in your favor if you don't say a number first. Another view is that you should raise a level appropriate for your growth plans, and set the valuation based upon the control demands of the VC. Control is more important than valuation.
beninato 17y ago
Hi Jack, Great question. It's pretty complicated, but I think naming a valuation can only lead to problems. Bottom line: it's not your job as an entrepreneur to value your company. It's up to the investor to "make the offer" in most cases. Angels and VCs are professional negotiators. Most entrepreneurs are not. They see thousands of companies every year and can very quickly assess the value of your company. I have seen situations where an entrepreneur shoots himself in the foot by stating a valuation that is lower than the VC had in mind, as you suggest above. But the reality is that the "market" will value your startup. If 3 VCs want to fund it, it's probably worth more than you thought. If 0 VCs want to fund it, it's probably worth less than you thought :( I think it's best to let the investors compete and the interest level drive the valuation of the company. If asked for a valuation by a potential investor, my suggestion to entrepreneurs is to say "We'd like to raise $X. We're realistic about valuations these days, so you don't need to worry that we want $20 pre. But we're going to let the market decide the valuation." Most investors respect that response from what I have experienced over the years.
sehender 17y ago
He who speaks first, loses.