The Ask


“So what should we say our company is worth?”

This is a question I get all the time from founders planning for their next fundraise. While the answer always depends, there are generally two strategies to choose between:

Strategy A: we are raising X million on a Y million pre-money valuation.

Strategy B: we are raising A-B million in exchange for somewhere between Y-X% of our company.

There are pros and cons with both strategies, but my general advice would be to go for strategy B. Here’s why:

Strategy A is the simple option - both the founder and the funder understand it immediately. While simple, there is a downside with this simplicity, and it is twofolded.

On the one hand; if you go with strategy A and communicate an amount and valuation which is the lowest you would be able to accept to continue building your company, you risk leaving money on the table (investors would be willing to pay more). Sometimes this solves itself as you have more investors competing to fund your company, but it’s not always the case as investors can lock in on the anchor you put out.

On the other hand, if you communicate an amount/valuation on the higher end of your “scale”, your risk getting “pre-emptive” rejections from investors who believe your company is “too expensive”. They could be interested in backing you at an amount/valution you would accept but not prefer, but choose to not even take the meeting because of the communicated amount/valuation. The pool of investors to choose from is reduced, and worst-case you end up with an unsuccessful fundraise because the investors you meet (who were not that price-sensitive) pass on investing for other reasons

In short; if you go too low you risk leaving money on the table, if you go too high you risk “pre-emptively” excluding investors which again can reduce the chances of successfully fundraising. This is why I would prefer Strategy B. (interestingly, strategy B is the best option the same way a direct listing is becoming the preferred way to go public for entrepreneurs. )

The combination of the highest percentage and the lowest amount should be something you would be okay closing with, while the opposite - lowest percentage and highest amount - would be a best-case scenario for your plans. Communicating ranges (valuation and amount) means you don’t exclude anyone too early, and can have the discussion on specific terms once you’ve identified one or more investors willing to lead a financing round. At this point you have a lot more information around how competitive of a process you’ve been able to run, and hence how hard you should push for the preferred end of your “ranges”. s