Do More Faster: TechStars Lessons to Accelerate Your Startup

Chapter 62. Don't Overoptimize on Valuations

Kirk Holland

Kirk is a general partner at Vista Ventures, an early stage venture capital firm, and has been a TechStars mentor since 2008.

Since I'm an early stage investor, I'm biased, but I think it's very important to make sure that your early investors are rewarded if your company is successful.

Companies going through the TechStars program have historically had pre-money valuations after the program in the $1.5 million to $4 million range. However, these early stage companies are not really worth millions of dollars when they finish the TechStars program and we make a deliberate point of reminding them of this. Forget what the market is. When someone invests a million dollars in a company at a very early stage they often wouldn't be off-base asking for half or even two-thirds of your company.

It often takes entrepreneurs a few moments of honest reflection before they realize this simple truth. Stop and think about it for a second: Someone is putting one million dollars into a startup that most likely has almost no revenue and is by definition extremely risky. Most startups fail and in this case they're going to be out a million bucks! What if that was your million dollars and this was somebody else's baby?

However, the best early stage investors ask for somewhere between 20 and 33 percent of the company for that kind of money. This is because ...