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- Can your valuation be too high?
Can your valuation be too high?
Read time 2.3 minutes.
Recently, I’ve had loads of you writing in saying that you’ve received term sheets but that the valuations are just too low.
My advice for you if you feel a valuation is too low is that if you are pre-Series B, then as long as you are only giving up 15-20% of your company, unless you are raising too little, that valuation is fair in today’s market conditions.
How do you know if you are raising too little? If the milestone that you will hit with this fundraise won’t get you to the metrics required to raise your next round at the valuation you are expecting.
To me, the issue of low valuations is easy to understand as the issue of dilution sets a minimum valuation you can accept. What is more complicated is high valuations. Many founders think that high valuations are great because of the limited dilution, but this is not always the case. So, let’s talk about high valuations.
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A high valuation was one of the reasons that my own company failed under my leadership.
See, I was very good at fundraising, and each time we’d raise a round, I’d create FOMO for others around missing out on investing, and that would drive up our valuation. Before we ever made $1 in sales, I had secured us funding at a $35M valuation. This created loads of problems that ultimately led to me leaving the company. See, for the company to get funding and grow, once we did have a product in the market, we needed money, nobody would give it at a $35M valuation, and we couldn’t raise below that. The result was that I was forced to sell my equity at a massive discount so that my co-founder could continue the business and use my equity to compensate past investors and artificially lower our past valuations, allowing us to raise again.
So, for each of you complaining of low valuations, remember that there are also problems with high valuations. The key is to find the RIGHT valuation, which you can do by using my free round size and valuation calculator.
Have you ever been offered money at too high of a valuation? |
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