Here is an interesting answer to the age-old question, “How much is your funding deal worth?”
In other words, for an investment if $[000], how much of your company are you willing to give up (sell)?
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From venture capitalist, Fred Wilson:
A Range Not A Price
Entrepreneurs often struggle with how to signal their valuation expectations to investors.
Investors rightly want to know what the entrepreneur’s price expectations
are before investing significant time on the opportunity.
But entrepreneurs don’t want to negotiate against themselves
and certainly don’t want to undervalue themselves.
So what I always recommend to the entrepreneurs we work with and,
frankly, anyone who asks is to “give a range, not a price.”
Let’s say you are raising a Series A round and have an aspirational valuation
in mind of $30mm pre-money, raising $6mm.
But you know that is an aggressive valuation and you may have to
accept something materially less in order to get a deal done.
Then I would tell investors “we want to raise $4mm to $6mm and
don’t want to dilute more than 20% including any increases to the pool.”
An investor could read that as you would accept $4mm at $16mm pre-money,
but you have signaled that $30mm post-money is where you are aiming.
And, because you said “don’t want to dilute more than 20%”, you have left some
room for your aspirational valuation of $30mm pre-money in which $6mm would dilute the company roughly 17%.
Try this the next time you are asked for a valuation from an investor.
It works well.
The original article along with numerous comments appears here: http://avc.com/2017/08/a-range-not-a-price/
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