Valuation, How Much Should You Care About it
Published by:
Salem Washeely
Valuation, How Much Should You Care About it?!
By: Salem Washeely
The subject of valuation is very critical that I think it is literally the main line that take up a big potion of any deal negotiation time. It is probably the highlight of any Term Sheet an entrepreneur receive from any VC. It is as well the main term where investors’ & entrepreneurs’ interest do not align, in a sense. However, for the best interest of both parties, valuation has to be fair from both sides perspectives in order to focus on building a great and successful company. In this blog I will cover the topic from the lens of an entrepreneur and subsequently I will cover the angle of an investor.
For entrepreneurs, they have to keep in mind that to get VCs interested in your company and keep them that way after the investment, an emphasis on value add and support provided should be highlighted and given credit while negotiating the deal. Squeezing every dime from interested VCs and not giving any credit to support to enable substantial growth would get them demotivated in supplying needed support later on after closing the investment round. at the same time, these two factors have to be in balance too. Also, if you force VCs to provide higher valuation, it means you made the investor give up one of the main factors in any investment “economics”. In that case, look out for terms that might harm you as an entrepreneur later on and might come back to hunt you in subsequent financing rounds. VCs as the nature of the way they are structured, have to put terms that balance out the risk they are taking from overvaluing your company, at least from their angle.
An entrepreneur seeking out funding from VCs need to keep this in mind and analyze every line of a term sheet rather than focusing on the first page only where valuation is spelled out. I advise too that you get over valuation first and then negotiate the rest of the terms. This way you negotiate the control with more favorable terms, fairly, as you settled on acceptable valuation for both and therefore investor will be willing to compromise in the control part.
This would let the entrepreneur set foot on a more mutually beneficial relationship with the investor and reduce potential conflict.
By: Salem Washeely
The subject of valuation is very critical that I think it is literally the main line that take up a big potion of any deal negotiation time. It is probably the highlight of any Term Sheet an entrepreneur receive from any VC. It is as well the main term where investors’ & entrepreneurs’ interest do not align, in a sense. However, for the best interest of both parties, valuation has to be fair from both sides perspectives in order to focus on building a great and successful company. In this blog I will cover the topic from the lens of an entrepreneur and subsequently I will cover the angle of an investor.
For entrepreneurs, they have to keep in mind that to get VCs interested in your company and keep them that way after the investment, an emphasis on value add and support provided should be highlighted and given credit while negotiating the deal. Squeezing every dime from interested VCs and not giving any credit to support to enable substantial growth would get them demotivated in supplying needed support later on after closing the investment round. at the same time, these two factors have to be in balance too. Also, if you force VCs to provide higher valuation, it means you made the investor give up one of the main factors in any investment “economics”. In that case, look out for terms that might harm you as an entrepreneur later on and might come back to hunt you in subsequent financing rounds. VCs as the nature of the way they are structured, have to put terms that balance out the risk they are taking from overvaluing your company, at least from their angle.
An entrepreneur seeking out funding from VCs need to keep this in mind and analyze every line of a term sheet rather than focusing on the first page only where valuation is spelled out. I advise too that you get over valuation first and then negotiate the rest of the terms. This way you negotiate the control with more favorable terms, fairly, as you settled on acceptable valuation for both and therefore investor will be willing to compromise in the control part.
This would let the entrepreneur set foot on a more mutually beneficial relationship with the investor and reduce potential conflict.
Make Life Better: Share this article on
The right timing
Salem Washeely
Making your startup easier to be invested in
Salem Washeely
Spending Efficiency
Salem Washeely