A major problem that many startups encounter when they embark on the capital raising process is to have a high valuation that scares investors away. There are three key reasons this will become a problem for you.
The 3 key reasons are:
1. Investor will not take a meeting, or if they do, they will not take another and they will have lost a lot of respect for you as a founder. First impressions last and a first impression of a founder with their head in the clouds never goes away.
2. Smart and strategic investors that add value to your startup will not pay high valuations and you want to attract investors like these from the beginning. Having high value investors that help you grow can make the difference between success and failure. They will also help you achieve a higher valuation in the next round, one which other investors trust because of the quality of the investors in the last round.
3. A high valuation creates significantly more challenging milestones and objectives you will need to hit than if you’d start with a lower valuation. If you miss any of these milestones then investors will lose confidence in you and your business, possibly resulting in a “down round” (where you have to raise capital at a lower valuation than the last). A down round is the kiss of death for a startup.
by Jeremy Liddle, cofounder and CEO of CapitalPitch, Australia