A Range Not A Price
Entrepreneurs often struggle with how to signal their valuation expectations to investors.
Investors rightly want to know what the entrepreneur’s price expectations are before investing significant time on the opportunity.
But entrepreneurs don’t want to negotiate against themselves and certainly don’t want to undervalue themselves.
So what I always recommend to the entrepreneurs we work with and, frankly, anyone who asks is to “give a range, not a price.”
Let’s say you are raising a Series A round and have an aspirational valuation in mind of $30mm pre-money, raising $6mm.
But you know that is an aggressive valuation and you may have to accept something materially less in order to get a deal done.
Then I would tell investors “we want to raise $4mm to $6mm and don’t want to dilute more than 20% including any increases to the pool.”
An investor could read that as you would accept $4mm at $16mm pre-money but you have signaled that $30mm post-money is where you are aiming.
And, because you said “don’t want to dilute more than 20%”, you have left some room for your aspirational valuation of $30mm pre-money in which $6mm would dilute the company roughly 17%.
Try this the next time you are asked for a valuation from an investor. It works well.