December 14, 2020 by investor
Negotiating the valuation of a startup between the CEO and the investors is a major step in funding.
An equity terms sheet requires coming to an agreement on the valuation which determines how much ownership is given to the investor.
Both startup and investor must now ‘climb the valuation wall.’
Be prepared for the ensuing negotiation and the back and forth.
It can be difficult to assign values when there is no product or revenue.
One solution to this situation is to delay setting the valuation until you have the right investor AND the right time.
Switch to a convertible note — a debt instrument that converts to equity later. Because it’s in debt form, there’s no valuation.
Later when there’s a team in place, a product built, and a revenue stream defined, it will be much easier to negotiate the valuation.
Don’t put the valuation negotiation on the first step as it’s high a wall to climb.
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.
Let’s go startup something today.
Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.
