Five Points on Startup Fundraising Prices: Have Evidence, Think Like an Investor, and Avoid Repeated Cuts

As usual, it is time for Robin. 1. Do some market research before setting an investment price rather than acting on instinct alone. Ideally, your asking price should have a complete rationale: it should be comparable and calculable. 2. Seeking investment means finding partners. Do not think, “I’m wonderful, so you must invest at this price.” Fundraising is not about dangling bait for whoever will bite. Think from the investor’s perspective, and approach financing as a search for partners. 3. Investing is a confidence game: you must give investors confidence. One of the worst things is to start high and keep cutting. An investor hears 150 million the first time, 120 million the second, 100 million the third, then hears 50 million in the market the fourth time. Their confidence keeps falling until they decide not to invest at all. 4. Create an atmosphere in which people compete to invest, and you may be able to raise the price moderately. But if investors discover that waiting benefits them most, they will tend to wait. After all, a few days later you cut the price again—so why not wait a few more days? 5. Do not negotiate an investment when you have no bargaining chips left. Returning to the point above, investors will wait if they see an advantage in doing so, leaving you with progressively less negotiating power.