What to say when asked about your valuation expectations. And don't forget to negotiate valuation!
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Karyn Miller:
I think negotiating valuation is interesting because as you're talking to potential investors, they all ask, well, what kind of valuation are you looking for? And you never want to reveal that. And it's hard because CEOs want to fill that void of quietness and they don't want to make an investor upset by not saying it. But you've got to hold your cards close to your vest on the valuation. If you get asked by an investor, what kind of valuation you're looking for, and you don't want to not say anything. I think the best place to start is if you've done a raise before, what your last raise was at. Clearly, they're going to know that because at some point, they're going to look at term docs if you've raised before. So, you can always start with, well this is what our pre and post was last time we raised. You could also start with an idea of, hey, we think we're valued on some multiple of revenue, we think we're at three or four or five X. But I would give a range and a very broad range of what you think that multiple is. Every CEO and the board clearly knows what the last investment was valued at for pre and post money. They clearly know they want to have a higher valuation than that and for the next round of investments. So I think it's a good discussion to have with your board, to understand what valuation you think is fair as you into the next round. But I wouldn't reveal it to your potential investors. If you want to guide to it guide to it by either giving your past raise or give a multiple of your revenue, but again, guide, higher and guide in a broad range. At some point, you're gonna get an idea of what valuation that they're considering and they're thinking about as you speak to them, and as you get closer to the point in which they're gonna deliver a term sheet to you. And I also would not be afraid of asking for a higher valuation. You're going to get some term sheets where the valuation is just so utterly low and doesn't make any sense to you and don't bother with those. You're going to get other term sheets where maybe it's really close or you want to nudge them up. I don't think it is wrong to go back and say, Hey, our board is going to be more comfortable... I always use your board as the bad person, right? Or our board is going to be more comfortable if our valuation could look like this X plus instead of the X you gave me. I think valuation is definitely something that CEOs should realize they absolutely can negotiate to nudge investors to where they want to be. Obviously, there's going to be a ceiling to it where you're not going to get investors to go beyond that, but if you're being reasonable. And certainly, I think it's easier to negotiate valuation if you have several term sheets and you've got a bidding situation going on. Definitely have an idea before you go into it and don't be afraid to negotiate once you start getting term sheets in.