Ask HN: How to negotiate valuation of a startup at seed stage?

1 pointstry_sincerely11y ago1 comments

Hello, I understand that it might seem like a "case-by-case" type of question but I hope someone can offer a generalized advice as well.

The situation: startup has an offer from early stage investor but the offer has lower valuation than startup is willing to accept. If startup takes this investment at proposed valuation and then raises the rest of the money necessary for the seed stage, it spend well over 25% equity recommended to set for seed stage [by Paul Graham].

It seems that such negotiation may easily end up in a pointless Valuation-A VS Valuation-B discussion. Which incentives can startup offer to seed investor in such circumstances?

Basically: Lets set the cap at $Y so that..

1 comments

1 comments · 1 top-level

nostrademons11y ago

"No". That's basically the most effective tactic you can use in a negotiation - walk. You don't need an explanation other than "We're not willing to do a deal at that valuation."

If you want to elaborate in the hopes that you can work out a compromise solution, the description you wrote here is fine, except that you shouldn't reference the 25% guideline as being set by Paul Graham. Instead, go back and read the essay where he laid it out and understand the reasoning behind it, which is probably something like "If we take your money at this valuation, then after the remainder of the seed round and further dilution from further rounds, there is not enough equity left for founders to make it worth our while."

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