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Aug31
Valuation Panic, Part 1 -- For Entrepreneurs
I listened to ten entrepreneurs give ten 4-minute pitches ten times to ten tables of angel investors at a FundingUniverse.com Speedpitching Luncheon the other day.  (Feel free to go back and read that last sentence again.  It was the best I could do.)

Before the event, I had the opportunity to advise each entrepreneur and give them feedback on their presentations.  Several of them included their pre-money valuation in their pitch.  I advised them not to.

Here's why:
  1. Most of them were rookie capital-raisers with absolutely no idea how much their company was worth and no math to back up their assertions.  Angels see through that.
  2. You can ruin your chances of raising capital by throwing out a huge valuation when you're talking to angels who are used to writing $150K checks for 15% equity.
  3. It may put you at a disadvantage in your valuation negotiations.  In many cases, it's good to have the angel suggest the first valuation.
  4. When you only have four minutes to pitch, you're primary goal should be to get a follow-up meeting with the angel.   Rather than throwing out your valuation, say something like, "That's an important question that deserves a detailed answer, and right now I don't feel like we have adequate time to discuss it thoroughly.  Why don't we meet later this week to talk about it.  My office or yours?"
Several of the entrepreneurs didn't follow my advise and, based on my conversation with the angels, ended up turning off otherwise interested angels.
If you are an experienced entrepreneur who has raised capital, and you can come into meetings with angels with a little swagger, that's a different story.  Today my friend Paul Allen told me about an entrepreneur with a great track record who does just that every time he raises money.  With first-time entrepreneurs, his story is the exception to the rule.

So, if you're a first-time entrepreneur giving an angel your elevator pitch, hold back on the valuation.


3 Comments/Trackbacks




Hello, deal all

Jeff, I would like to benefit from your advice on getting the focus of potential investors BY OTHER ways than speed meeting where finally everybody is under pressure (investors willing to pick the right project, throwing questions that definitively needs detailed answers outside the meeting but might give bad feeling about the project if not immediatly smartly answered by a few words, and young entrepreneurs competing which each other and trying to go badly too fast, or, on the reverse, too detailed) in their explanation.

As a starting entrepreneur, before continuing "to swim with the sharks" in speed meetings , I would like to know whether you consider advertising my pitch on some european site (I am based in europe)for seed money like www.FirstMillionEuros.eu is a good idea.
As a potential advertiser on it, I would like to have your advice (and any readers comments about pros and contras) about using pixelads to get many seed investors focus online on my project pitch, and build therefore smooth, progressive, and structured (web based pitch , plus email exchange ) relation with potential investors (meaning also it will be my issue to qualify investor capability in building the relationwith them) before we meet each other with the hooked investor to go to more detailed and personal relationship.

Pixel advertising has shown its capability to get the focus (everybody remember the success of Alex TEW and its million dollar homepage) and therefore advertising my startup pitch through pixel ads on such a website might be a good investment for my project promotion ?
Do you see any risk or drawback I might have to face in doing so compared to speed meeting, if I carefully adapt my elevator pitch (or little more detailed pitch for investors identifying themselves online after reading my elevator pitch) towards potential visitors, and advertise my startup project on www.firstmillioneuros.eu ?

Thanks in advance for your comments and advice on this.
Regards,
Terry G, UK.

Do you see any risk or drawback I might have to face in doing so compared to speed meeting, if I carefully adapt my elevator pitch (or little more detailed pitch for investors identifying them online after reading some online elevators?

A conversation with angels could be efficient if it is an angel willing to help. To say that long phrase within four minutes with other things to deal with is a total waste of time. And I guess that kind of person is not so well informed since he asks where to meet. He might not have heard of virtual offices like London Virtual Office. It is obvious some entrepreneurs have to do their homework long before going into meetings.

Comments/Trackbacks are closed for maintenance.


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