Negotiating the valuation is a key step in the fundraising process. 

Here are some helpful strategies to consider in negotiating the valuation:

Understand the comparable valuations in your space. 

These are called comps and give you a starting point for negotiating. 

The founder should have a proposed valuation to show investors.

This could be renegotiated later, but it gives a starting point to the discussion.

The key to a successful negotiation is to articulate all the values in the business.

VCs will often throw out a lowball offer.

This, for the most part, is a negotiation tactic.

The VC is testing to see how much the founder believes in their own valuation.

Keep the terms on a pre-money valuation basis.

If you state the valuation in post-money terms, then any additional funding raised will eat into the founders’ ownership stake.

Consider the options pool in the negotiation process and how that will be paid for by both the founder and the VC rather than the founder alone.

Finally, don’t rush the process or be rushed by the VC.

Take your time and consider all the terms.

 

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.
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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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Disclaimer:
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.