There’s no gentle way to put this… How you price your fundraising round says a lot about your competence and decision-making as a founder.
In fact, pricing your round too low is almost worse than pricing it too high.
A high price simply tells investors that you’re overvaluing what your company is worth. It’s a rookie mistake that a lot of first-time founders make. But, it’s excusable as long as you can explain the logic behind the number.
But, if you price the round too low, it communicates to potential investors that you’re not informed on the market. If an investor knows more information about your company’s market than you, it’s a really bad sign.
To avoid this mistake, here are a few things to consider when pricing your seed-stage round of financing:
1. Look at the round size and valuation of similar startup companies that have raised before you.
2. Look at the revenue multiples of the publicly traded companies in your industry.
3. Consider the broader fundraising market at the moment (Is the capital environment tight or loose?).
4. Don’t assume that because you’re slinging SaaS, you can get an automatic 10X multiple.
Like I said, the valuation is just another little test in the long gamut that is the fundraising process.
Do your best to back into a number and prepare to defend it.
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