The Key Balance Between Capital Raised and Company Valuation

The key balance in startups: capital raised vs company valuation.

Obviously you'd like a skyrocketing valuation on a low capital raise - more value being created per dollar invested.

But most VC-backed companies raise money in consisteny-ish slugs (seed, series A, etc).

So it's interesting to see that for the median company, the percentage of capital raised vs the post-money valuation is pretty flat (around 22-28%).

Couple notes:

• This is just the most recent post-money valuation. It is NOT a guarantee of any kind that the company will actually exit at the current val.

• This simply reflects the capital raised and does not take into account any higher liquidation preferences. If you raise at a 2x liq pref, investors would get more money back before any cash flows to the founders and employees.

• Some startups get WAY out over their skis, raising massive amounts and then finding the valuation suffers a decline in a future round leaving them underwater (or close to it).

• The opposite is also sometimes an issue. A massive valuation with not much capital on the books means the startup has to execute flawlessly just to stay solvent. And massive valuations can make the next round less likely.

Anyway, interesting that the median vibe is turning $1 into $4-$5. But who in venture is shooting for the median anyway...