There are too many people that think raising money is like an episode of Shark Tank. You say, “I’m raising $XM at a valuation of $YM” just like they do on Shark Tank.
Not only does providing a valuation makes you look like an amateur, providing a valuation can reduce the value of your company.
Let me explain…
In any negotiation, you should always let the other side provide a price first.
Yes, you have to be emotionally strong because of the effect of anchoring, but…
It’s always possible that you will get an offer at a price much higher than you expected. And you blow that opportunity the second you put a price out there first.
So, absolutely be clear about how much money you’re raising. That’s the right way to go.
But stay away from providing a valuation. The market (potential investors) will determine what your company is worth.
Then you can always say, “No thank you” if you don’t like what you hear.
I’m not saying you shouldn’t have a plan when you negotiate.
You absolutely should have a plan. And you should have an idea of what you believe your company is worth.
But understand the only way to truly have leverage when you are negotiating terms is when there are multiple investors competing to work with you.
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