Valuation

There’s this dance that entrepreneurs and venture capitalists do when it comes time to negotiate the economic terms of an investment. And it all revolves around valuation.

The question is what is the fair value of the business? This supposedly establishes how much of the company the venture capitalists will own for their investment.

But I think the concept of valuation is often misunderstood by the people engaged in this process. And it’s particularly true in early stage investing.