Your obsession with valuation is sabotaging your raise (I will not promote)

About once a week I work with a founder that shoots themselves in the foot right before the goal line and closing that cheque from investors. And it’s usually around valuation. Quick qualification: I’ve raised funding for 7 startups and 2 funds. I’ve made all the mistakes I mention below. TLDR: it’s not your job as a founder to set a valuation. It’s the market’s job. Your job is to build the most valuable company possible and make investors feel FOMO so they give you better terms. Any investor who asks for valuation upfront is either A) an unsophisticated investor, or B) giving you a shit test and playing some power dynamic game. Serious investors have their own methods of valuation and will make you an offer based upon their investment thesis. Don’t make your life harder by trying to answer the question. But if you have raised at a price or terms earlier then yes, do disclose that because it will come out anyway in due diligence. Also remember, VCs expect you to build a unicorn. Thats a billion dollar valuation and more. Squabbling over five percent here and there at the early stage is futile. You need that cheque as first money. I’ve given the lowest cap and up to 80% discount for the first investor just to get the money in the door because it’s the unlock I need. Beggars can’t be choosers at that point. Of course if you’ve got like 15% WoW revenue growth and are building the next breakthrough with all the pedigree in the world that’s a different story. But that’s not me. If that’s you, you’re not reading this anyway. Here are other ways I see founders faceplant before getting to the proper time to discuss valuation: FIRST: You’re so obsessed with valuation that you ignore traction or presenting properly. Founders will contact me and tell me they have their first VC meeting and ask me a dozen questions on valuation. I have to give them a shake and explain there are a dozen of other things that come first. SECOND: You think that more equity is more control. I see founders say they need 51% of the company and refuse to dilute thinking somehow every share equals a vote in early stages. The reality is that a proper VC may own less than you but still control the company through the terms and stuff like operating agreements and board seats. So it’s better to give them the ownership they want and focus more on the terms. Hope for the best but plan for the worst in writing. FINALLY: Here is where valuations do matter and that’s if you sell too much equity before a VC can get their money in. I’ve seen cap tables jammed up with so much dead equity because the founder sold 25% to their uncles friends or assigned shares to family. They think VC money will magically fox their cap tables. And don’t get me wrong. They can and might. But why? Why would a VC give you money to fix your poor financial decisions in the past when they’ve got a dozen other startups they could fund with less headache? Let’s say your cofounder left with their 50% because you didn’t get vesting and cliffs figured out. Not their problem. VCs need enough room to get enough ownership so they’re not so diluted that they can’t return the fund by the time you raise your D+ round to go public or get acquired for a price they’re okay with. And this is the biggest issue I see. Founders treat investors like plan A for funding and ignore the fundamentals investors want to see BEFORE you seek funding. This creates the environment to get all worked up about valuation for nothing. (Apologies for grammar, run-on sentences and formatting. Typing this old school on my phone)