Do More Faster India, 2nd Edition

Chapter 66Don’t Overoptimize on Valuations

Kirk Holland

Kirk is a managing director at Access Venture Partners, where he has led investments in NexGen Storage (acquired by Fusion IO), Craftsy, RoundPegg, TapInfluence, and TaskEasy. He has been a Techstars mentor since 2008.

Since I’m an early-stage investor, I’m biased, but I think it’s very important to make sure that your early investors are rewarded if your company is successful. They’re taking a huge risk in providing capital to you.

Companies going through the Techstars program have historically had pre-money valuations after the program in the $1.5 million to $4 million range. However, these early-stage companies are not really worth millions of dollars when they finish the Techstars program and we make a deliberate point of reminding them of this. Forget what the market is. When someone invests a million dollars in a company at a very early stage they often wouldn’t be off-base asking for half or even two-thirds of your company.

It often takes entrepreneurs a few moments of honest reflection before they realize this simple truth. Stop and think about it for a second: Someone is putting one million dollars into a startup that most likely has almost no revenue and is by definition extremely risky. Most startups fail, and in this case they’re going to be out a million bucks! What if that was your million dollars and this was somebody else’s baby?

However, the best early-stage investors ask for somewhere between 20 and 33% ...