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Valuations 101: The Venture Capital Method

Gust

The Venture Capital Method (VC Method) was first described by Professor Bill Sahlman at Harvard Business School in 1987 in a case study and has been revised since. It is one of the useful methods for establishing the pre-money valuation of pre-revenue startup ventures.

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What Does the Post Crash VC Market Look Like?

Both Sides of the Table

At our mid-year offsite our partnership at Upfront Ventures was discussing what the future of venture capital and the startup ecosystem looked like. But here’s the magic few people ever talk about … We’ve created more than $1.5 billion in value to Upfront from just 6 deals that WERE NOT immediately up and to the right.

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Which Fundraising Round Should You Skip?

View from Seed

The reality is that if a founder raised every one of these rounds, and lead investors always got their “target” ownership, the level of dilution would be ridiculous. No good investor would want the founder/CEO of a company to have insufficient ownership by the series A, and every founder I know is sensitive to taking too much dilution.

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Bad Notes on Venture Capital

Both Sides of the Table

On the phone … Me: So, you raised venture capital? And now I have to explain to team that they’re taking more dilution than they expected if we do a down round. Me: More dilution? We raised a seed round. About $1 million. Me: At what price? Him: It wasn’t priced. We raised a convertible note. Him: Um.

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A framework to think about pricing seed, angel, and venture capital rounds

This is going to be BIG.

Note that, to even get venture in the first place, you are special. Getting less dilution than standard means that you have to have made fantastic progress, have a world class team, etc. The question then becomes whether or not there's any significant reason to move off of that default.

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Why LP’s Passed on Seed Funds 10 Years Ago (And What’s Happened Since)

View from Seed

And yes, a seed fund may have a tougher time holding on to their ownership down the road, and thus get diluted down. We’ve had multiple companies in our early funds that hit bumps and had to raise flat rounds, which hurts from a dilution standpoint but doesn’t wipe out our position. So yes, seed funds will own less. But guess what?

Dilution 399
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How Much Founder Stock Should You Offer Co-Founders?

Startup Professionals Musings

Of course, all co-founders need to remember that allocated percentages will be diluted as angel and venture capital investors are brought in. Keep your wits about you to make sure that dilution is done equitably and evenly. The CFO may have a major financial background, but might be a minority owner.

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