

Channel your Inner VC to Understand Startup Valuations - webwright
http://www.currentlyobsessed.com/2010/05/27/unexpected-startup-lesson-2-channel-your-inner-vc-to-understand-startup-valuations

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webwright
I think Joe missed one of the crucial considerations in valuation... How many
doors you close with a high valuation.

If you close $3m on a $10m post-money valuation, you're signing up to build a
$100m company (see
[http://www.angelblog.net/VC_Mandatory_Moonshot_The_Unwritten...](http://www.angelblog.net/VC_Mandatory_Moonshot_The_Unwritten_Terms.html)
). If things aren't going great (i.e. growth has plateaued), you MIGHT be able
to sell for $50m.

This is especially true if you take money from a BIG venture fund (who has
$500m under management and needs to see BIG exits to move the needle).

Looking at the chart here ( <http://redeye.firstround.com/2007/07/the-
unintention.html> ), the vast majority of exits are under $100m... Which means
that committing yourself to be north of that means a long road and a lot of
risk.

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joshu
Came here to point that out.

~~~
jheitzeb
Yeah, good point... That is a big (biggest?) part of a typical VC's way of
thinking. Similarly on the founder's side is the "emotional control" factor in
determining exits and decisions in spite of the terms and VC's objectives.
Have you seen any posts about that aspect?

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aarong
This post helps raise some of the issues. I agree with webwright that it's
just one factor though. It seems like considering pre money valuation as an
output aligns you with the kind of thinking on the other side of the table -
though I'm not an investor so can't really say.

That said, the big one seems to be finding an investment partner that you
really like, that will be there through the ups and downs and who has well
aligned motives.

Either way, what I can say from experience is that it is very useful to
understand how the math works backwards and forwards. Investors go through
this many more times then we do as entrepreneurs. So the better you understand
the financial administration aspect of raising money the easier time you'll
have when the conversation goes there. And you do want it to go there.

