What should entrepreneurs do? The simplest answer is to use aconvertible debt structure. This avoids pricing the company too high or too low and also does not create unforeseen deal structure issues. The money converts into the professional round when raised.

Everyone loses when earlier rounds are mispriced. Venture capitalists lose the opportunity to invest in quality companies. Entrepreneurs end up running their business hand to mouth as they get trapped raising one $500k round after another.