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In response to the FundingPost email for the event on June 5, 2008: The event will focus on best practices in raising capital.... how they determine your valuation.
This one caught my attention... you never let a VC tell you how to determine your valuation. Lol. It's like letting you home buyer tell you how much you should sell the house for!!
I notice the tone of this e-mail focuses on Entrepreneur sucking up to VC. I am an entrepreneur and the way I see it is, it's a privilege for VCs to invest in my company that i bust my chops to make it happen (and not the other way around).
VC and company's are partners in a single mission. Funding post should position it such a way. It's very immature to have entrepreneur who are the having to suck up to VCs. It doesn't have to be that way. It should be a place of gathering for two people with common goal to meet.
I dont think its about sucking up, but you Do need to impress the VC with your company. Positioning your pitch to make it out to be a "privilege" for the VC to invest doesn't often work....Unless you are a serial entrepreneur with large exits under your belt. Yes, you are busting your chops and working hard to grow your business, but if you need capital to grow, you need to impress the guy with the check book.
As for Valuation, yes, its a negotiation. You think its higher, they think its lower. So, how do they determine your valuation? Do they just take your word for it? probably not. They look at several factors, including the team, the technology, the market, what you have put into it (cash and sweat), competitors, how far along the company is, etc.... That mixed with a bit of their gut feeling is the number they come up with that they would buy in at. This is what they determine your valuation should be. Now, You dont have to take their money if you think they are valuing it too low, just as they certainly dont have to write you a check if they think you are valuing it too high.
When you buy your next house, I strongly recommend that you dont write a check for the listing price. Look at the other houses in the area, look at the quality of the house, the market, the schools, etc. and then make an offer of what you think the value of the house should be if you were to write a check.
Valuation is often a deal-killer. If the entrepreneur and the VC spend so much time negotiating this, it can be seen as a reflection of things to come. I often hear that getting rid of a business partner is harder than getting a divorce. You guys are in this for the long haul with a common goal. Its always in your benefit to understand how the VCs think, and what their expectations are right up front. Thats the goal of our events.
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