Accepting lots of money at a ridiculous valuation is a worse deal for most startups.
+ Scenario 1
Imagine a VC offered you $100M on day 1 of your startup, valuing you at $300M. Is that a good deal? Or a disaster in the making?
Well, what if someone offers to buy the company for $100M, your VC will balk. Maybe you discover barriers that will prevent your company from ever being worth $300M. Your VCs encourage you to experiment and take a hail mary shot. Ultimately the company flops and goes out of business. In this scenario you raised a bunch of money, got a "great deal." but have little flexibility on the exit.
+ Scenario 2
Now imagine another scenario where you raise $5M, valuing your company at $10M. This is a "worse" deal in terms of dollars raised and valuation. But now imagine that same acquirer comes along offering $100M. Your VC will be happy with a 10X return and you'll pocket $50M.
The quality of the deal ultimately can't be assessed until you exit. But don't mistake big dollars and high valuations as evidence of success. Fab and Quirky both raised huge piles of money to build out new ecommerce businesses and failed dramatically. Wayfair by contrast, raised no VC and built a $4B business. Choose your metric wisely.
> Imagine a VC offered you $100M on day 1 of your startup, valuing you at $300M. Is that a good deal? Or a disaster in the making?
That's solely dependent on the terms. It isn't possible to say whether it's a good or bad deal without clarifying the exact terms of the investment. That's an amazing deal if the terms are stacked in the favor of the business owner/s.
+ Scenario 1
Imagine a VC offered you $100M on day 1 of your startup, valuing you at $300M. Is that a good deal? Or a disaster in the making?
Well, what if someone offers to buy the company for $100M, your VC will balk. Maybe you discover barriers that will prevent your company from ever being worth $300M. Your VCs encourage you to experiment and take a hail mary shot. Ultimately the company flops and goes out of business. In this scenario you raised a bunch of money, got a "great deal." but have little flexibility on the exit.
+ Scenario 2
Now imagine another scenario where you raise $5M, valuing your company at $10M. This is a "worse" deal in terms of dollars raised and valuation. But now imagine that same acquirer comes along offering $100M. Your VC will be happy with a 10X return and you'll pocket $50M.
The quality of the deal ultimately can't be assessed until you exit. But don't mistake big dollars and high valuations as evidence of success. Fab and Quirky both raised huge piles of money to build out new ecommerce businesses and failed dramatically. Wayfair by contrast, raised no VC and built a $4B business. Choose your metric wisely.