Valuations and fundraising

1 pointsanj1 comment

I was talking to a buddy of mine that's been through a few rounds at a few startups. One interesting point he raised is that investors want to own 25-30% of a company after they've invested. In his opinion, this was a hard lower limit.

What this means is that raising $250k implies a $1M valuation.

And that if you really do think you're worth $4m, you should raise $2m for a post-money $6m.

Have others found this to be the case?

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It is the case that there is between 20-30% valuation that they typically need to invest. And yes, that does effect valuation math. However, there are of course plenty of other cases outside the "norm"

a) A super hot company people will always make exceptions for. Especially smaller more focused funds like Union Sq.

b) No VC is going to give you $250k on an A round valuation and expect 25% of the company. They will either be angels (who will take more like 2-25%) or if a VC they will do the $250k as convertible debt to the A round.

Do not raise $2m if you don't need $2m. Structure your round around the capital requirements, not the other way around.

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