In Part I of this two-part series, I explained how a favorable pre-money valuation can be undercut by a large option pool baked into the pre-money cap table. In this Part II of the series, I will concentrate on one other deal term that can serve to undermine a negotiated valuation: liquidation preferences. Failure to
valuation
Why Valuation is Overvalued, Part I: The Option Pool
By Alon Y. Kapen on
In any seed or early stage round negotiation between a company and a VC, one of the first and most contentious issues to be negotiated is valuation. A company’s pre-money valuation will determine how much equity will need to be issued to the investor for any given amount of investment, and thus on its face…