Valuation vs. Deal Terms: Three Things You Need to Know

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Sanjay Gandhi shares insight into deal terms, valuation, and the importance of understanding your exit hurdles. 

We’ve seen a significant increase in founders talking to us about deal terms in the current funding environment, especially as the earliest signs of economic tightening and downrounds are starting to appear. Many ask, “How do I get the highest valuation” and our answer always is “That’s only part of the story, and usually not the most important part”. It is reminiscent of the comments received from a talk we’ve given around the country called: How Much Would You Get if You Sold Your Company for $100M? A surprising number of founders don’t know the answer to this, and it couldn’t be more important as you navigate through the funding landscape on the way to an exit.

What’s important to keep in mind is that venture-backed outcomes tend to be clearest at the extremes.  When the company is a homerun with a hockey stick trajectory, everybody wins BIG.  When the company is ill-fated early, you pack it up and move on. However, in that messy middle zone, which represents far and away the vast majority of venture deals, adroitly dealing with the issue of valuation vs. deal terms can make the difference between founders walking away with life-changing money or a cup of coffee.

What’s important to keep in mind is that venture-backed outcomes tend to be clearest at the extremes. When the company is a homerun with a hockey stick trajectory, everybody wins BIG. When the company is ill-fated early, you pack it up and move on. However, in that messy middle zone, which represents far and away the vast majority of venture deals, adroitly dealing with the issue of valuation vs. deal terms can make the difference between founders walking away with life-changing money or a cup of coffee.

 

Key points include:

  • The terms that make a difference
  • How multiple rounds of funding change the game
  • Knowledge is Power – know your exit hurdle

 

Read the full article, Do You Know Your Exit Hurdle?, on Oxfordvaluationpartners.com.