How Tier 1 & Tier 2 VC funds use pricing to 'win' rounds.. & why that doesn't work on the best founders "The strategy that they're going to employ is to use valuation as a lever to win, & it's not a crazy strategy, but it also puts a... tremendous amount of stress on your returns if you don't pick right." "The best founders don't typically respond very positively to that—I think they're really thinking more about what's the right price for my company rather than what's the highest price I can get." Bucky Moore Partner at Lightspeedshow more

Seems to assert that the "best founders" take the lower valuation more of the time...have seen no data at all suggesting this. It might be true! But I'm skeptical.

Do You Trade Stocks & Options? I received my license for trading Stocks & Options in '05. Each day, I share options trading watchlists, market insight and professional trading strategies. ZERO cost, zero strings attached. Follow along & learn to trade strategically.

It's price, not valuation. It's a pedantic point, but I do think professional investors should care enough to get this right.

get which part right?

I think that's spot on - best price could just mean a lot of pain later down the road and setting unrealistic goals. I want the best price for my home and my car because once it sells, that's it - I'm done. With fundraising, I want the right price because once it closes, targets are set.

💯

Brickyard been seeing this?

The problem is that at that stage, capital has become very commoditized. Every bidder has a great team, great brand, etc. You can't really compete on anything other than price.

Really? Do founders in practice ever reject term sheets from top tier funds at better valuations to take worse terms from 'lower-tier- VCs?

"You can take less money?"

Good clip/interview @MollySOShea. I agree with most of this, but I'll put a few modifiers from my own opinion: 1.) I think that at the margins we can quibble on T1 vs. T2 (who is in which VC "grouping"), but I think there are at least a significant amount of funds that are clearly T1 or T2 (at least based on history, size, rep, connections, talent, etc.). That's not a dis, it's just facts, IMO. For instance, I (if I had the money) can start a pro football league, but can I really honestly flex that I have the same talent on my team YR1 as the @Eagles? No, I can't. "But, JDV, we're both pro, how can you say that, we don't know for sure, these are new players, a new year, etc.." No, we pretty much know that, IMO. I may have my potential occasional issues with the @NFL draft, or scouting, or conservative/possibly lack of courage/imagination for filling NFL rosters, but for every @TomBrady story, there are at least 10-100X stories where the system got it right. This brings up a larger Q (and analogy) of the "warm intro" to VC that @pmarca was talking about and some said a study criticized, but the short story is there are always these kinds of discussions over the years on various topics. The challenge is always to figure out what's best for you, do your own diligence, find the "unfound"/overlooked alpha, and figure out where the ball/puck is going to be in future biz/tech and be there first. Nothing has changed on that basic premise, IMO. The Q is how do you build a better mousetrap and not get "trapped" into a thought paradigm/system that isn't effective. So, to that point, I totally agree with your guest. 2.) I wish more founders (and biz/tech press, etc.) would think as your guest suggests, but frankly, I've worked with a lot of founders, been a founder, been a VC and been in the game a while, and for the most part (good or bad) founders and press chase valuations. The bigger the better. Which can be problematic as the clip suggests. On the other hand some VCs may use price to "win" deals, we all know the name of the game is to fiond the best deals, get in the deal as low a val as possible, and get as much of the deal as you can (per your firm's strategy, etc.). So, a lot of founders worry about being undervalued, and I certainly get it. Which leads us to the obvious as the clip states. It is best to fairly price rounds, but that can be hard to do and can be more of an art than a science, IMO. Plus, it is often affected by the market the raise is done in (which can inflate or undervalue just based on market conditions), but let's assume we figure out true FMV, great. That then leads to the T1 vs T2 discussion, as all things being equal I'm going to want to go with a @sequoia, @foundersfund, @kleinerperkins, @a16z, @khoslaventures, @Accel, NEA, @BessemerVP, etc., etc (not trying to leave anyone out here my VC peeps, just the post is already long) vs. a new fund or whatever. Which also leads the the discussion of what value the VCs are providing beyond money, are they using the FF model/@ycombinator-type model or more traditional VC (Khosla, etc.) model, is the the same as it used to be, etc. and so it goes. Just my $0.02 NOTE: not giving financial advice, VC advice, or any other kind of advice. Everything you do is at your own risk. Not alleging any facts and all my personal opinion only.