For our Insights and Opinions section today, we have an article from Peter Lee, a venture capitalist at Baroda Ventures (www.barodaventures.com), discussing company valuation, and what the real goal of setting a value on a company is, and should be.
One of the most confusing and misunderstood concepts to entrepreneurs is around valuation – not only in how it is determined (that is an entire post itself which I won't try to tackle right now) but more importantly, what should the goal be?
I think for entrepreneurs who haven't been been through fund raises already, the first and obvious reaction is the get the highest valuation possible and if you do, you'll have "won the battle". I guess it makes sense that this viewpoint is commonly held - in many other areas of negotiations, auctions, grades, sales deals, etc, the goal is to get to the extreme (either lowest or highest) and the closer you get, the better you did. It's how they got to where they are now – by winning and excelling in everything they did. They view the "valuation negotiation" with a VC just another competition to win.
So, why isn't this the right approach for entrepreneurs?
Read Peter's full article in our Insights & Opinions section.