One of the questions investors like to ask is “What’s your target valuation for this round?” Sometimes they’re calibrating to see if the valuation is in their typical range, sometimes they’re fishing for information, and sometimes they’re seeing if there’s a logical answer. As an entrepreneur, there are two correct answers:
- We’re going to let the market decide.
This should be the most common answer (it isn’t) as it shows that the entrepreneur is both flexible and looking to create an auction process to find the best combination of terms and valuation.
- We’re thinking of the range $X to $Y.
Now, it’s best to keep it open ended but some investors press for a number. Don’t give a single number. Instead, give a range and sound flexible since it depends on a variety of factors. Never forget the old investor saying: you decide the valuation and I’ll decide the terms (it always holds true).
When an investor asks about valuation, provide one of these two answers and keep it simple. Valuations are much more subjective than they might seem.
What else? What are some more thoughts on the two answers to the valuation question?