Founders: Protect your equity. VCs have a playbook for valuation that most founders donโt see. Here's a side-by-side look at how they calculate deals differently from you: ๐๐๐ฅ๐ฎ๐๐ญ๐ข๐จ๐ง ๐๐๐ฅ๐๐ฎ๐ฅ๐๐ญ๐ข๐จ๐ง Founder: $3M pre-money โ $4M post-money, ownership at 75%. VC: Adjusts for 20% pre-funding option pool, "true" pre-money is $2.4M, ownership at 60%. ๐๐ฉ๐ญ๐ข๐จ๐ง ๐๐จ๐จ๐ฅ Founder: Assumes minimal dilution, unaware of VC's pre-funding requirement. VC: Requires a 15โ20% option pool pre-funding, lowering founder equity. ๐๐ข๐ช๐ฎ๐ข๐๐๐ญ๐ข๐จ๐ง ๐๐ซ๐๐๐๐ซ๐๐ง๐๐๐ฌ Founder: Expects investors to get their money back first in a sale. VC: Adds 2xโ3x participating preferred, reducing founder payout on smaller exits. ๐๐ซ๐๐๐๐ซ๐ซ๐๐ ๐๐ญ๐จ๐๐ค ๐๐๐ซ๐ฆ๐ฌ Founder: May misunderstand or overlook participating preferred terms. VC: Uses these terms to protect downside and boost returns on smaller exits. ๐๐๐ ๐จ๐ญ๐ข๐๐ญ๐ข๐จ๐ง ๐๐ญ๐ซ๐๐ญ๐๐ ๐ฒ Founder: Accepts terms quickly due to urgency or lack of knowledge. VC: Structures terms to maximize returns while appearing founder-friendly. ๐๐ซ๐-๐๐จ๐ง๐๐ฒ ๐ฏ๐ฌ. ๐๐จ๐ฌ๐ญ-๐๐จ๐ง๐๐ฒ Founder: Sees valuation as pre-money + capital raised. VC: Adjusts pre-money valuation after factoring in option pool. ๐๐๐ฅ๐ฎ๐๐ญ๐ข๐จ๐ง ๐๐ง๐๐ก๐จ๐ซ๐ข๐ง๐ Founder: Focuses on high headline valuation to minimize dilution. VC: Frames discussions around ownership percentages and post-money equity. ๐๐๐ฏ๐๐ง๐ฎ๐ ๐๐ฎ๐ฅ๐ญ๐ข๐ฉ๐ฅ๐๐ฌ Founder: Uses optimistic projections or market comparables. VC: Applies conservative revenue multiples based on sector benchmarks. ๐ ๐ฎ๐ญ๐ฎ๐ซ๐ ๐๐ข๐ฅ๐ฎ๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ฌ๐ข๐๐๐ซ๐๐ญ๐ข๐จ๐ง๐ฌ Founder: Overlooks dilution from future funding rounds. VC: Models dilution across rounds to maintain target ownership. ๐๐๐ฉ ๐๐๐๐ฅ๐ ๐๐ฆ๐ฉ๐ฅ๐ข๐๐๐ญ๐ข๐จ๐ง๐ฌ Founder: Doesnโt assess long-term cap table dynamics beyond the current round. VC: Models impact on employee options, pro rata rights, and founder equity. Learn the math. Master the terms. Protect your stake. credits: Ivelina Dineva/linkedin
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