Why valuation feels rigged against founders
Investors price deals with asymmetric information. A VC sees hundreds of comparable rounds a year and knows exactly how the market is pricing companies like yours this quarter. You raise once every 18 months. It is like negotiating with a car dealer who knows the price of every make and model while you are guessing. The fix is understanding what they are actually weighing, which is four questions.
Question one: what was your last round?
VCs ask this even though databases like PitchBook already tell them. They are checking fit against their ownership targets. At Octopus Ventures our investment committee would set a target range, usually 15 to 25% ownership. Investing $5M at a 20% target means we needed companies raising around the $15M to $20M pre-money mark. Price yourself far outside a fund's range and the answer is no before the pitch starts. They are also checking whether your last round was overpriced: VCs avoid down rounds and dislike flat rounds, partly because they do not want to upset your existing investors, partly because a falling valuation reads as negative momentum. I rejected a company in 2019 on exactly that basis, and its previous down round kept haunting its raise.
Question two: can they make their return?
Every valuation gets sanity-checked against exit maths. The rough targets: pre-seed and seed investors underwrite for around 100x, Series A for around 10x, Series B onwards for around 4x. Take a $10M seed valuation. A 100x outcome means a $1B+ exit. If your industry exits at roughly a 10x revenue multiple, that requires $100M of annual revenue. If the investor cannot see a credible path to that number, your $10M valuation is too high for them regardless of what the market says. If they can, it holds.
Question three: what is the perception of you?
Ranges bend under perception. Sector hype, competition in your round, market froth like 2021, belief in the exit, and plain fear of missing out all push valuations past a fund's normal discipline. Some funds hold the line, and at Octopus we walked away from deals over price more than once. Many do not. If investors believe they are looking at greatness, the range goes out of the window. This is why running a proper process with multiple interested investors moves your price more than any spreadsheet.
The only real lever: competition in the round
This is what I drill into every founder I coach: strip everything else away and valuation is simple maths: how much you are raising against how much equity you give away. The number inside that range is set by negotiation, and your leverage in that negotiation is competition. When investors are fighting to get in, they accept less equity for the same money. When you have one interested fund and no alternative, they want more. Founders spend weeks polishing a valuation argument when the argument that actually moves the number is another term sheet.
What to do if your last round was priced too high
A pattern I coach founders through constantly: the last round priced ahead of where the traction now sits, and the next raise has to live with it. Do not ignore it and do not apologise for it. Reframe it: delay the launch if you can, spend the time building the two or three proof points that justify the number, and open the new raise with what is different now. Investors do not need your last valuation to have been right. They need the story of this round to make sense from here.
Should you name a price?
Usually no. The buyer proposes the price, and whoever names a number first loses the negotiation: name low and you leave money on the table, name high and you scare funds off before a conversation. The stronger play is to signal the inputs instead: what you raised last time and when, what you are raising now, and that you expect a valuation in the normal range for that amount. An investor can do the dilution arithmetic themselves, and you have anchored the range without ever quoting a figure. The exceptions where naming a price works better: angel rounds (or use a SAFE and defer pricing entirely), strategic investors who prefer a yes/no decision to pricing a round, and party rounds with 8 to 10 smaller cheques and no lead.
Want to see where your own number lands before an investor tells you? The Valuation Reality Check walks through what your startup is implicitly worth and what drives the number. Take the Valuation Reality Check here. It is free behind an email.
Common questions
How much dilution is normal in a funding round?
15 to 30% per round is the standard band, with most priced rounds landing at 20 to 25%. Your valuation is effectively your raise amount divided by the dilution the round settles at.
Should I tell investors my expected valuation?
Usually not. Signal the inputs instead: last round's price and date, how much you are raising now, and that you expect the normal range. Let the investor propose the number. Exceptions: angel rounds, SAFEs, strategics, and party rounds without a lead.
Why do VCs hate down rounds?
A down round upsets existing investors a new VC may want to work with again, and it signals negative momentum. Most VCs would rather pass than negotiate your price down below the last round.
How do investors value pre-revenue startups?
Backwards from the exit. They estimate what the company could exit for, apply their stage return target (roughly 100x at seed, 10x at Series A, 4x at Series B+), and check whether your valuation still lets them hit it.
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