Setting your company’s valuation

July 10, 2009 | Chris Morris | Comments | |

What’s the biggest mistake an entrepreneur can make? According to Jason Green, Founding Partner at Emergence Capital, it’s responding to the question about the valuation of their business.

In this segment, taken from a 2007 Entrepreneur’s Summit hosted by Stanford University, Green discusses ways to turn the tables on investors who ask that question and the importance of letting the market decide what a company is worth.

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About the Author, Chris Morris

Chris Morris is editor of the Entrepreneur Corner on VentureBeat, helping start-up business owners launch and grow their companies. He previously worked at Yahoo! Finance, where he was managing editor, and as director of content development at CNNMoney.com. His work has also appeared in Variety, CNBC.com, AOL and Forbes.com.

  • ujjwalg
    worthless answer.
  • AndreaF
    Possibly the most wasted 2.30 minutes of my life
  • woutxz
    Worthless, why? I would say that startup valuation is 95% determined by the market (never been more obvious than now). It's wishful thinking to think otherwise.
  • jprendergast
    Useless, no. Obvious, yes and only sometimes correct. The market is a nebulous thing so its probably more helpful to think of it as a negotiated value, hopefully negotiated in the context of multiple players.

    In that context its easier to see why answering the valuation question directly isn't always the right play. When you answer directly you give information but potentially receive none in return. VCs often have a good poker face. If instead you're answer is something similar to the suggestion in the video, you're more likely to get information that can help you. In any negotiation you want as much information as you can get from the other parties. Its that simple.

    There are some cases where putting a number on the table can be the right thing to do but they are usually special cases, not enough room to list them here.

    If you don't think these are nuanced conversations, then you'd better let someone else handle it.
  • I have tried this approach in later stage business (rounds raising $10m+) and I have found that it doesn't work very well. Investors tend to want to have a ballpark valuation before they start wasting their time thinking hard about whether they are interested.

    I can see that this might work at Series A, where an entrepreneur is moving from an idea backed by angels to a good solid business. It's also clear that investors see many more deals than entrepreneurs, so they have a good idea where "market" is.

    While I agree with jprendergast above that getting good information is incredibly valuable, if valuation is going to be a stumbling block, you should get it out of the way quickly. If there just isn't a meeting of minds, move on to the next conversation.
  • 2007 ? Of course it is worthless now. Bubble era valuation approach is just about as relevant now as last year snow.