LearnVC.com » Pre Venture Capital http://learnvc.com Your guide to raising capital Mon, 01 Mar 2010 22:30:58 +0000 http://wordpress.org/?v=abc en hourly 1 Valuation of the seed round with friends and family http://learnvc.com/2008/10/valuation-of-the-seed-round-with-friends-and-family/ http://learnvc.com/2008/10/valuation-of-the-seed-round-with-friends-and-family/#comments Mon, 06 Oct 2008 22:22:10 +0000 squareroots http://www.learnvc.com/?p=551 The balance between the founders and the investors is critical for any early stage company.  This is true even with investments from friends and family.  Consider two situations:

High pre-money valuation

Example: a pre-money valuation of $10M for a pre-revenue software company.  Although this would appear to favor the company and the founders, what may result is an inability to raise money in the future from angel investors or venture capitalists.  Professional investors sometimes avoid companies where an unjustified high valuation would require a “down round” to correct to market valuations.

Low pre-money valuation

Normally this dilutes the founders, which can be fixed with stock options.  However, it may be a flag of inexperience to investors in future rounds.

As part of due diligence, investors will ask about an entrepreneur’s previous startup experience.  Especially important is when they ask about the returns for investors in these earlier companies.

External Links

Collection of articles on angel investing
Do VCs like Angel backed companies by Brad Feld
Another VC takes on the same topic by Fred Wilson

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