Valuations

The guys over at Venture Hacks have a post today about setting valuation on early stage companies.  Since I know a little about this, I left this comment:

I would argue that early stage entrepreneurs should avoid valuation at all costs.  You have nothing to gain from setting a valuation when the company is nothing but an idea and devoted people.  If you set it too low you are losing money.  But, if you set it too high you are going to have huge problems when it comes time to raise the next round.  It is a lose-lose either way for the the entrepreneur.   You are much better off using a note  with a cap.  Protect your investors on the upside- which is what they are looking for with a set value- without putting yourself in the position of having to maybe take a down round.

I really can't think of a single good reason why an early stage entrepreneur would want to set a value on a company that is nothing more then an idea. 

Comments

[Nivi]

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