Low Valuation Offers

A couple of weeks ago, I met a local entrepreneur who is raising money for her new company. I connected her to a micro venture capitalist (VC) out in California who offered to invest at a pre-money valuation of $1.5 million. She turned down the offer to try to raise capital at a $2.9 million valuation elsewhere.

I think she made a mistake. A better approach would have been to accept the valuation, but only raise a tiny amount of money.

Don’t Be Quick To Turn Down Low Valuation Offers

When entrepreneurs turn down financing because they think the valuation is too low, they are usually miscalculating. Most entrepreneurs overestimate the number of investors who will offer them a term sheet. And they usually underestimate the amount of time it takes to find investors.

Sophisticated investors finance a tiny fraction — less five percent — of the companies that approach them for money. Each investor an entrepreneur approaches consumes a lot of the entrepreneur’s time explaining the idea and

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Source: Small Business Trends