When Should Startup Founders Discuss Valuation with Seed VCs?

View from Seed

Or, in the case of a convertible note, they’ll explicitly state a valuation cap. On the positive side for a founder, directly stating a high valuation expectation up front can anchor the negotiations to a higher level, assuming that an investor takes the leap of faith to invest.

10 Rules of Thumb for Startup Investment Valuation

Gust

Once you have a potential investor excited about your team, your product, and your company, the investor will inevitably ask “What is your company’s valuation?” How much is NewCo worth to investors at this point (pre-money valuation)? Image via eHow.com.

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Startup Valuation: How Much Is Your Company Worth?

Seed Stage Capital

skip to main | skip to sidebar 19 January 2010 Startup Valuation: How Much Is Your Company Worth? One of the most common issues that concern entrepreneurs is how to address the "Valuation Question." How do we best approach the question of valuation?

5 Ways To Radically Improve Your Company Valuation

YFS Magazine

For business owners, startup valuation is a topic that causes lots of angst, raises tons of questions and definitely gets emotions blazing. Finance Grow business valuation company valuation fundraising investors invse money raising capital raising startup capital raising venture capital

10 Rules of Thumb for Startup Investment Valuation

Startup Professionals Musings

Once you have a potential investor excited about your team, your product, and your company, the investor will inevitably ask “What is your company’s valuation?” How much is NewCo worth to investors at this point (pre-money valuation)? valuation entrepreneur startup investor business

Making Sense of the Stock Market Drops in Relation to Venture Financing

Both Sides of the Table

So why invest in that period of uncertainty unless it’s early-stage and thus valuation matters less. You might also favor a quicker close at a slightly lower valuation than you had hoped in order to decrease risk. This could have an impact on later-stage valuations.

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Age of companies when they achieve $1bn valuations

The Equity Kicker

It seems to me there are two obvious explanations for the dramatic reduction in the time it takes for companies to achive $1bn valuations: The pace of change is increasing allowing new companies to develop and mature faster.

Sizing Option Pools In Connection With Financings

A VC : Venture Capital and Technology

Investors like to require that an unissued option pool is in the pre-money valuation calculation when they put money into early stage companies. What I like to do, as I mentioned in the post I linked to, is agree with the entrepreneur that the option pool will have enough unissued options to fund all the hiring and retention grants that need to happen between the current financing and the next one. Then we'll do the same thing at the time of the next financing.

Demystifying Small Business Valuation

Inc Startups

A successful small business sale begins with a solid grasp of business valuation. Left unchecked, the valuation process can quickly devolve into a pricing routine that is rooted in personal attachments and other subjective inputs rather than solid data based on marketplace realities.

Convertible Note Seed Financings: Founders Beware!

Scott Edward Walker

This post is the third part of a three-part primer on convertible note seed financings. Part 1, entitled “ Everything You Ever Wanted To Know About Convertible Note Seed Financings (But Were Afraid To Ask) ,” addressed the basics.

Website Valuation Methods

Blogtrepreneur | Entrepreneur Blog

Website Valuation: How to determine Website Value. Regardless of whether you’re a buyer or seller, trying to work out how to do website valuation is a tricky business. What I will say is that the first and most straightforward way to value any kind of website is to find out how the market as a whole determines a website’s valuation. Website Valuation Methods. This is probably the most commonly used method for website valuation – and it’s relatively straightforward.

US startup valuations reach ten year highs

The Equity Kicker

Venturebeat reported yesterday that US startup valuations have reached ten year highs. You can see from the charts above that median valuations have been increasing at all stages from seed through to Series D or later.

Notes on raising seed financing

Chris Dixon

I’ve written ad nauseum on this blog (see contents page) about venture financing so hadn’t planned to blog more on the topic. VCs can be less valuation sensitive and have deep pockets but are sometimes buying options so come with some risks ( more ). Tech angels and seed funds tend to be most valuation sensitive but can sometimes make up for it by helping in later financing rounds.

Investors Beware: Today’s $100M+ Late-stage Private Rounds Are Very Different from an IPO

abovethecrowd.com

Historically, different financial institutions specialized in different stages, because the assessment of risk and opportunity was considered unique at each stage — for example, a seed investor was unlikely to do late-stage financing, and vice versa.

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Finance Fridays: Getting Started – Allocating Equity and Founder’s Investment

Feld Thoughts

Finance Friday’s gets off the ground with today’s post by introducing you to an imaginary startup, the entrepreneurs that we’ll being following throughout the series, and their first challenges: splitting up the founders’ equity and addressing the case where one of the founders provides the initial seed capital for the business. That narrowed the possibilities down to an equity transaction, which would in turn require a conversation about valuation.

Should Investors in the Same Round of Financing Ever Get Different Prices?

Both Sides of the Table

But Paul Graham really did have a point in his “ high resolution fundraising ” post – that there is a problem – particularly in angel financing – with herding cats. We plan to raise at a $5 million pre-money valuation.

Startup Valuations – Again….

ithacaVC

I have written about startup valuations previously. This morning I was reading one of my favorite daily compilations of articles (called Innovation Daily, subscribe here ) and came across another great short article on startup valuations called “ Seed Rounds: How to Pick a Valuation “ Joseph Walla, who I don’t know, wrote it. There’s a reason it’s so difficult to figure out – valuations have little basis in reality for early stage companies.

Knowledge Is Power: Convertible Note Financing Terms, Part I

Gust

It should therefore come as no surprise that an asymmetry of information exists, mostly gleaned from experience, between founders and investors in a venture financing deal. For a traditional VC financing round structured as a sale of preferred stock, the best resources I can recommend are the Term Sheet Series by Brad Feld and Jason Mendelson and Startup Company Lawyer by Yokum Taku.

Convertible Debt – Valuation Caps

Ask The VC

Today, in our series on convertible debt, we examine the conversion valuation cap. The valuation cap is typically only seen in seed rounds where the investors are concerned that the next round of financing will be at a price that is at a valuation that wouldn’t reward them appropriately for taking a risk by investing early in the seed round. The entrepreneurs thinks their valuation should be higher. They receive a term sheet at $20 million pre-money valuation.

The "Vig" Working Its Way into VC Financings

Allen's Blog

This post in Techcrunch raises interesting issues around what seems to be a trend in VC financings for "lead" investors to get a better deal than "follower investors" in the same round. When I started working on VC financings as a lawyer in the (very) early 80's, one of the first things I noticed was that "lead" investors, who did all, or certainly most, of the work on VC financings (e.g., the same things that "lead" VCs do in early-stage financings.

When In Doubt on Pre-Money Valuation, Smart Guys Procrastinate

Recent Buzzes - VC Experts, Inc.

If there simply is no way to get a handle on the pre-money valuation in an angel round, the trick is to postpone the valuation/pricing decision until a future event. Typically this event is the first professional (some times called the Series A) round of financing, when the company is more mature. At this point, professional VCs are investing and perhaps competing to invest, in which case the price is fairly established by definition through an informal auction

Raising Financing: Convertible Debt vs. Equity

Instigator Blog

Seth Levine from Foundry Group touched off a debate on which is the best way to raise startup financing: convertible debt or equity. So in the Series A, when you now want to raise $2M and the pre-money valuation is $6M, the $500k is measured against a pre-money valuation of $4.8M. In my experience, it wasn’t any easier to raise financing through convertible debt. Tags: Startups angel investors convertible debt financing raising capital seed investments

How to Fine-tune Your Small Business Finances—from Funding to Growth [Webinar Recap]

Up and Running

Bates: Good morning and welcome to our CEO panel, “How to Fine-Tune Your Small Business Finances From Funding to Growth” which I think is the direction that we would all like to be going. What is the hardest part of managing your finances?

The Trap of Relative Value

Feld Thoughts

He’d gotten a random note asking about his valuation when we invested relative to another financing that was just announced. The other company, which was much smaller at the point of investment, got an 11x ARR valuation. My response to the specific situation was: Valuations have increased on a relative basis. Each of these examples got me thinking about the relative valuation trap. How did someone come up with the valuation?

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5 Reasons Startups Need Revenue As Well As Users

Startup Professionals Musings

Should they focus on increasing revenues and profitability, or entice more and more users with “free” services, to increase their valuation. The concept of free goods and services to get you hooked, financed by deep pockets, or advertising, seems marginally ethical to many.

Everything You Ever Wanted to Know About Convertible Note Seed Financings (But Were Afraid To Ask) – Part 1

Scott Edward Walker

Introduction We are in the golden age of seed financing. Venture capital funds, seed funds, super angels, angel groups, incubators, and “friends and family” are all playing the seed financing game and investing early in startups in an attempt to land the next Facebook.

Some thoughts on when to raise money, and the current financing environment

Chris Dixon

Here are some thoughts on this question generally along with some thoughts on today’s venture financing market. - Venture valuations have swung by roughly a factor of 4 over the last decade. In finance speak, venture tends to be high beta, moving as a multiple of the public markets, which themselves tend to move more dramatically than economic fundamentals. Prior to the Facebook IPO, the consensus seemed to be that private valuations were near the top of the cycle.

The "Real Valuation" Is About Having Fun

Inc Startups

Ronen Shilo, founder of software company Conduit, talks about what his company's recent $1 billion valuations means--and doesn't mean--to him. It reached a $1 billion valuation in May, 2012. The valuation did not really shock any of us. It's not that the valuation changes things.

Knowledge Is Power: Convertible Note Financing Terms, Part II

Gust

Last week , we gave some attention to the “why” behind convertible note financing for early stage startups. As with so many subjects in law and finance, mastering the jargon is half the battle. This may seem like a no-brainer now that you understand the basic structure of a convertible debt financing. Amount of Financing : Up to $600,000 may be issued. In this installment, I’ll dig into the “how” by dissecting an example term sheet based on a real deal.

How do the sample Series Seed financing documents differ from typical Series A financing documents?

Startup Company Lawyer

After the recent announcement of the Series Seed Financing documents by Marc Andreesen, Brad Feld points out that there are now four sets of “open source&# equity seed financing documents: TechStars Model Seed Funding Documents (by Cooley). Y Combinator Series AA Equity Financing Documents (by WSGR). Series Seed Financing Documents (by Fenwick & West). This post assumes that you have a basic understanding of Series A financing terms.

Early Seed Financing Terms Endure… Whether We Like It or Not

Genuine VC

Dharmesh Shah had a great post up last week about the lessons learned from raising a mezzanine round of financing. But the more meaningful reason that early financing terms endure into future rounds is that negotiation away from terms already in place are just that – negotiation. Earliest terms matter most, even and especially in the seed round, because they set not only the base literal structure, but also the “tone” for future financings.

Convertible Debt, Priced Equity Rounds and Deal Timing

Gust

An impromptu Twitter debate arose among Fred Wilson, Dave McClure, Mark Suster, Chris Dixon and others about convertible debt, priced equity rounds, and the nuances of early stage financing. Invested Interests angel investment convertible debt convertible note deal terms due diligence financials fundraising priced equity priced rounds tactics valuation valuations VCs venture capital

Wegner: If You Need To Raise Money, Get Your Financing Done ASAP

Ask The VC

Albert Wegner (Union Square Ventures) has today’s VC Post of the day titled If You Need To Raise Money, Get Your Financing Done ASAP. You can never predict when this is going to happen, so my point of view is raise the money when you can, make sure you know whether your existing investors can (or will be able to) fund you if the market dries up, and don’t optimize your timing in hope of a modestly better valuation.

Worked Up about Unrealistic Venture Capital Valuation

Growthink Blog

So, Mike tells me he wants to raise a first round of venture capital based on a $100 million valuation. Getting a $100 Million valuation is impossible for a startup. In fact, getting above a $10 Million valuation is also virtually impossible unless you have at least some traction (e.g., I mean it took YEARS and millions of members before Facebook commanded a $100 Million valuation. And how, there's no way he would have received a valuation above $5 million.

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Facebook, Twitter, & startup valuations - The best properties always look too expensive

Don Dodge on The Next Big Thing

The experts thought Microsoft was crazy when they invested $240M in Facebook at a $15B valuation. Digital Sky Technologies invested $200M in Facebook in May of 2010 at a $10B valuation. Just 7 months later Goldman Sachs is investing $500M at a $50B valuation. Techmeme has stories every day of startups with rich valuations, or later round financings with multi-billion dollar valuations. Market valuations are asymmetric.

Cash is King: 8 tips for Optimizing your Startup Financing Strategy

For Entrepreneurs

Getting Funded avoid down round Startup fundraising startup valuationIntroduction This post aims to help startup CEOs optimize their funding strategy by examining how investors value startups, and explaining how to avoid the common cash management pitfalls. Note: The concepts in this post will likely be obvious to experienced CEOs and entrepreneurs. Despite that, our experience indicates that entrepreneurs frequently make costly, avoidable mistakes [.].

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Bad Notes on VC

Gust

It’s like we need a finance 101 course for entrepreneurs. Me: There is no rational explanation for valuations of A round companies by ANY objective financial measure. In finance they call it “terminal value” but the truth is the price is as arbitrary at your A round as it is at your seed round. Plus, if you price it then when you go to your next round of financing there is no haggling with future investors on what the note should be priced at. This week.

Pre-Money Valuation vs Number of Founders | @altgate

Altgate

I was working on some data analysis around the topic of angel round pre-money valuations (which I’ll post soon) and came up with the following interesting charts. What is interesting is that you see a peak pre-money valuation of $3.16

What Didn’t Happen

A VC : Venture Capital and Technology

to 5x revenues, a far cry from what companies get financed at in the late stage private markets. As long as the biggest venture backed companies stay private, this dichotomy in valuations may well persist and that’s unfortunate in my view.

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7 Lessons On How To Avoid A Quick Business Failure

Startup Professionals Musings

They only see and remember the recent new entrants in the billion dollar valuation club, including Uber, Airbnb, and Snapchat. Successes via a single dictatorial founder are even more rare than billion dollar valuations. billion dollar valuation quick failure startup Tom Hogan