If you compare funding offers not by valuation but by the amount of the company you have left afterward (which is what actually matters), you'll be less tempted by higher valuations.
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Suppose you have 40% of the co and you raise $1m at a valuation of $10m. Afterward you have 36%. Whereas if you raise $1m at a valuation of $20m, you have 38% afterward. Doubling the valuation only gets you 1/18 more equity.
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If you have an offer at a somewhat lower valuation from an investor you like a lot more, take that one.
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So 36% of $10m is not as much different as 38% of $20m valuation?
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It's the same company in both cases, and 38% of it is only 1/18 more than 36% of it.
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I don’t get it: $10m valuation you get 36% $20m valuation you get 38% Why would you rather 36% than 38% if you’re still just getting $1m?
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All other things being equal, you'd rather have 38% of course. But the two aren't that different, so if all other things aren't equal, you might prefer deals in which you get 36%.
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If someone doesn't realize this at the outset, I can't imagine how well they'd do running a company
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The more diluted the founders’ shares, the less important the valuation differential is. If a founder had only 5% ownership, in your example his post would be 5.50% versus 5.75%! Maybe not worth the hassle!
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@lu_naganawa@arturtavr matemática simples mas não trivial.Thanks. Twitter will use this to make your timeline better. UndoUndo
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