
Seed Stage Valuation Guide - Mistone
https://jordancooper.wordpress.com/2011/01/12/seed-stage-valuation-guide/
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littleidea
Assume all money is dumb until proven otherwise and let the market set the
price.

He lays out decent guidelines for pricing, but questioning a founder's
judgement for taking more money at a better valuation?

If you really have a 'go big or go home' venture fundable business to build,
get the best war chest you can and get to work.

I'm not saying that raising too much money can't be a mistake for various
reasons, or that there isn't inherent value in working with certain investors,
but given the choice between too much or under capitalized, take the money.

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gyardley
Jordan's not questioning a founder's judgement for taking more money at a
better valuation, he's questioning a founder's judgement for taking a _little_
money at a high valuation, and by doing so buggering up the rest of his seed
round.

If you want to raise $500K-$1MM, and you somehow get a commitment for $50K at
$10MM pre, Jordan's arguing that you'd be a fool to take it, because you're
simply not going to find enough dumb money to fill out the rest of your round
at that price.

I'm surprised no one's tried to do a multiple-unit Vickrey auction (aka a
'closed second-price auction') for this sort of thing.

~~~
littleidea
That's not what the article says at all.

The example he gives is the difference between putting money in at 3M or 5M
pre and he's not talking about a problem filling up a round.

He's making the claim that 'better' investors won't participate in rounds they
feel are over priced. That's a totally different problem than not being able
to finish a round. (Not to mention what an unlikely and unsophisticated
scenario it is to have the problem that 50K was committed at 10M. I feel sorry
for both the investor and the founder. Not sure which is more naive...)

People on the board can definitely make all the difference, and I generally
agree with the pricing numbers given the current market.

I just find questioning the founder's judgement on raising at a 3M vs a 5M
pre, uhm, questionable.

If you are an investor and you know this guy who might one day be negotiating
part of an exit for you isn't going to leverage the market to get a good price
now, I question your judgement.

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aditya
I'm a little confused by what Jordan is questioning here.

This is basic market economics isn't it? Deal is hot, angel wants to get in,
deal gets a high valuation. If one angel didn't give it a high valuation, the
deal would just go somewhere else and get funded. Is it setting itself up for
future disappointment leading to a down round? Maybe, maybe not. And if it is,
then the market will correct itself over time when angels see that none of
their high valuation deals are getting funded.

Maybe that's what Jordan is trying to do? Force a correction by talking sense
into people?

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alexwestholm
An overly optimistic valuation can also lead to a down round later on. I'd
recommend this as further reading:
[http://lsvp.wordpress.com/2007/07/09/asymmetric-risk-and-
the...](http://lsvp.wordpress.com/2007/07/09/asymmetric-risk-and-the-dangers-
of-too-high-a-valuation/)

