Comments on: The Dreaded Question of Valuation http://www.bothsidesofthetable.com/2009/07/28/the-dreaded-question-of-valuation/ Entrepreneur turned VC Sun, 01 Aug 2010 00:25:20 +0000 hourly 1 http://wordpress.org/?v=5015 By: marksuster http://www.bothsidesofthetable.com/2009/07/28/the-dreaded-question-of-valuation/comment-page-1/#comment-539 marksuster Fri, 31 Jul 2009 07:21:35 +0000 http://bothsidesofthetable.com/?p=508#comment-539 Multiple investors in a round almost always invest at the same price. The main time it's not the case is when one investor invests early into a "convertible bridge loan" which has a discount or warrants attached to it. Pre-Money + Total Amount Invested = Post Money, yes. However the one big bogey is understanding the impact that options have on the "true" pre-money price, sometimes known as the "option pool shuffle." Make sure to read this blog post on VentureHacks to understand the whole thing better: http://venturehacks.com/articles/cap-table#more-113 Multiple investors in a round almost always invest at the same price. The main time it’s not the case is when one investor invests early into a “convertible bridge loan” which has a discount or warrants attached to it. Pre-Money + Total Amount Invested = Post Money, yes. However the one big bogey is understanding the impact that options have on the “true” pre-money price, sometimes known as the “option pool shuffle.” Make sure to read this blog post on VentureHacks to understand the whole thing better: http://venturehacks.com/articles/cap-table#more-113

]]> By: marksuster http://www.bothsidesofthetable.com/2009/07/28/the-dreaded-question-of-valuation/comment-page-1/#comment-538 marksuster Fri, 31 Jul 2009 07:16:57 +0000 http://bothsidesofthetable.com/?p=508#comment-538 You end up at the same place either way You end up at the same place either way

]]> By: Shane http://www.bothsidesofthetable.com/2009/07/28/the-dreaded-question-of-valuation/comment-page-1/#comment-537 Shane Thu, 30 Jul 2009 16:46:11 +0000 http://bothsidesofthetable.com/?p=508#comment-537 Okay, so because the VC or angel has an idea of how much equity they are after, is it better to back into the valuation by calculating how much you are raising, rather than attempting to arbitrarily value a pre-revenue company with young founders? ;) Okay, so because the VC or angel has an idea of how much equity they are after, is it better to back into the valuation by calculating how much you are raising, rather than attempting to arbitrarily value a pre-revenue company with young founders? ;)

]]> By: Sid http://www.bothsidesofthetable.com/2009/07/28/the-dreaded-question-of-valuation/comment-page-1/#comment-536 Sid Thu, 30 Jul 2009 10:16:55 +0000 http://bothsidesofthetable.com/?p=508#comment-536 Mark, Is post-money valuation always equal to Pre-money valuation + Amount Invested. Sounds obvious, but was wondering if there's more to it than that? So when multiple funds participate in a particular round, what then is the post-money valuation, does each investor have their own post-money valuation of the business? Or, in a particular round does every participant invest at the same valuation, I've always wondered that when seeing multiple investors participating in a round. Thanks! Mark,

Is post-money valuation always equal to Pre-money valuation + Amount Invested. Sounds obvious, but was wondering if there’s more to it than that?

So when multiple funds participate in a particular round, what then is the post-money valuation, does each investor have their own post-money valuation of the business? Or, in a particular round does every participant invest at the same valuation, I’ve always wondered that when seeing multiple investors participating in a round. Thanks!

]]> By: marksuster http://www.bothsidesofthetable.com/2009/07/28/the-dreaded-question-of-valuation/comment-page-1/#comment-535 marksuster Thu, 30 Jul 2009 10:10:47 +0000 http://bothsidesofthetable.com/?p=508#comment-535 Depends on stage of deal. There are norms for stage and depending on economy. Also depends on last round valuation (sometimes), progress made (or not) since then and how competitive the deal is. But the overarching valuation mechanism is that a VC wants to own between 20-40% of your company, with the norm being 25-33%. So if you can justify raising $2 million your looking at a likely valuation of $4 million pre-money / $6 million post. Obviously just guidelines. The later that stage and the more revenue to judge by the more it would be based on a multiple rather than ownership percentage. Depends on stage of deal. There are norms for stage and depending on economy. Also depends on last round valuation (sometimes), progress made (or not) since then and how competitive the deal is. But the overarching valuation mechanism is that a VC wants to own between 20-40% of your company, with the norm being 25-33%. So if you can justify raising $2 million your looking at a likely valuation of $4 million pre-money / $6 million post. Obviously just guidelines. The later that stage and the more revenue to judge by the more it would be based on a multiple rather than ownership percentage.

]]> By: marksuster http://www.bothsidesofthetable.com/2009/07/28/the-dreaded-question-of-valuation/comment-page-1/#comment-534 marksuster Thu, 30 Jul 2009 10:06:42 +0000 http://bothsidesofthetable.com/?p=508#comment-534 I'll try to cover that at a later date. Thanks for the idea. I’ll try to cover that at a later date. Thanks for the idea.

]]> By: Sid http://www.bothsidesofthetable.com/2009/07/28/the-dreaded-question-of-valuation/comment-page-1/#comment-533 Sid Thu, 30 Jul 2009 09:18:35 +0000 http://bothsidesofthetable.com/?p=508#comment-533 Would be interesting to hear from you the differences between VC pitching and Angel pitching. What are the differences in approach/strategy that an entrepreneur should be aware of in trying to raise seed money from an Angel Sid Would be interesting to hear from you the differences between VC pitching and Angel pitching. What are the differences in approach/strategy that an entrepreneur should be aware of in trying to raise seed money from an Angel

Sid

]]> By: Shane http://www.bothsidesofthetable.com/2009/07/28/the-dreaded-question-of-valuation/comment-page-1/#comment-532 Shane Thu, 30 Jul 2009 00:39:46 +0000 http://bothsidesofthetable.com/?p=508#comment-532 My question is, how does the VC come up with the initial valuation? Is there a starting point that is typical, and then you put your voodoo on it to come up with a more tailored number, or do you start from scratch on every deal? If there is a starting point (say for specific industries, like consumer web), what is it? Thanks again for taking the time, Shane My question is, how does the VC come up with the initial valuation? Is there a starting point that is typical, and then you put your voodoo on it to come up with a more tailored number, or do you start from scratch on every deal? If there is a starting point (say for specific industries, like consumer web), what is it?

Thanks again for taking the time,
Shane

]]> By: marksuster http://www.bothsidesofthetable.com/2009/07/28/the-dreaded-question-of-valuation/comment-page-1/#comment-531 marksuster Tue, 28 Jul 2009 23:16:35 +0000 http://bothsidesofthetable.com/?p=508#comment-531 I promise to get to the traction slide soon. Maybe next week. re: co-founders - I'll also cover that. Thank you for posting. re: pet peeve - Someone else had mentioned this to me and I went back and updated it so the response is there now. Sorry. p.s. the old wife can be the hardest sell of them all ;-) I promise to get to the traction slide soon. Maybe next week. re: co-founders – I’ll also cover that. Thank you for posting. re: pet peeve – Someone else had mentioned this to me and I went back and updated it so the response is there now. Sorry. p.s. the old wife can be the hardest sell of them all ;-)

]]> By: Greg http://www.bothsidesofthetable.com/2009/07/28/the-dreaded-question-of-valuation/comment-page-1/#comment-530 Greg Tue, 28 Jul 2009 17:54:59 +0000 http://bothsidesofthetable.com/?p=508#comment-530 I'm in the early stages of planning a startup, and I've really enjoyed reading through the blog. Very useful stuff to think through even though I'm currently only preparing to pitch my first sweat equity investor, my wife. ;-) Off-topic, I'm looking forward to the customer adoption/traction post you mentioned earlier. Also, what was the big pet peeve you alluded to at the end of the demo post? Also one more request: At some point, it would be great to get your thoughts on co-founders - finding, selecting, and recruiting them in general, and which co-founder strategies optimizes both general company building and fundraising. I’m in the early stages of planning a startup, and I’ve really enjoyed reading through the blog. Very useful stuff to think through even though I’m currently only preparing to pitch my first sweat equity investor, my wife. ;-)

Off-topic, I’m looking forward to the customer adoption/traction post you mentioned earlier. Also, what was the big pet peeve you alluded to at the end of the demo post?

Also one more request: At some point, it would be great to get your thoughts on co-founders – finding, selecting, and recruiting them in general, and which co-founder strategies optimizes both general company building and fundraising.

]]>