The Monk and the Riddle: The Art of Creating a Life While Making a Living

by Randy Komisar

I had to explain. Valuation is all about risk and reward. Sure, $50 million is a sizable business, but what are the chances for failure or delay? And how much money would he ultimately need to be successful? Future dilution would have to be figured in the mix. The lead VC is more likely to want around 40 percent of the deal for his money at this stage. If Lenny were to raise $5 million, 40 percent would mean that the post-money valuation, the value of the company plus the new money, would be more like $12.5 million. Subtract the investment, and you have a $7.5 million pre-money valuation, the implied value of the business. Nowhere near the $25 million Lenny was suggesting. Everybody here brags about valuation, but Silicon Valley really operates on momentum. Many times I caution a company not to take the largest valuation they can in a financing, because it sets the wrong expectations and probably attracts the wrong investors. Peg the round at the highest reasonable price necessary to raise the desired amount from the right investors. The right investors bring credibility, experience, and networks. They support you with enthusiasm in later rounds. They raise your valuation merely by their presence in the deal.