My Least Favorite Part of Venture Capital

I'm a lead investor.

That means I'm usually the first person to put down a price on what your company is worth--a dollar value on months, if not years, worth of your work, blood, sweat, tears, stress, etc.  

"Here's a piece of paper that says how much I think your dreams are worth."

The reality is, any price that I put down at the stage that I invest isn't going to feel like enough--and if it doesn't feel like enough, I'm probably grossly overpaying.  But, you don't feel like that as the founder.  

Your company is special, which, I 100% agree with.

That's why, out of the 2,000 opportunities I saw this year, you and your company are one of the 8-10 I gave a term sheet to.  So, congrats!  All the reasons why you think you should get a much higher price for this round are the very reasons you made it past the 1,992 other companies.  

But, at this stage, starting from a Powerpoint, prototype, or even a demo product, you probably have just as much chance of going under as any other company.  It's sooo early in the life of the company that it's nearly impossible to determine if, in 7 or 8 years, whether or not you have a better chance at success than anyone.  

If picking out the winners were so easy at this stage, VCs would be a lot better at it.  

Really, the biggest determinant of price is supply and demand--and so, more so than a qualitative judgement on your worth as a human being, consider this bid a data point.  This is where I think the market is for this company right now.

That other company, I can't speak to what happened there and why they got a $10mm pre-money.  I passed on that deal.  Maybe those investors were smarter than me.  

What they aren't, however, is harder working--and I have to say, it really bugs me when I invest in someone super early and then the next round comes in and the price isn't that much higher than what I paid for it.  It's like, "Why did I take all this risk at this stage if the next round is going to be a $3mm round on a price of $12mm?"  

Makes my $7mm pre seem not really worth the risk in the grand scheme of things.

But back to us.

Look, we're just not aligned here.  I'm just trying to get the best price possible for my investors, and you're just trying to take the least dilution.  

I hope we can meet somewhere in the middle, but yeah, this part is kind of going to suck.  The only thing I can really do is tell you how I came to this price, what other deals I closed with similar pricing, and show a willingness to be flexible if it turns out we underpriced it and the round is oversubscribed.  

Besides, the only thing that matters is how big it gets in the end, and how self-sufficient we can make this company over time.  A million dollars on the pre-money now pales in comparison to the dilution of having to take a few more rounds down the line.