November 30, 1999 in ATDC News

Don’t Judge A Term Sheet By Its Valuation

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Many entrepreneurs are too concerned about their valuation.  They use it like a scoreboard to compare their startup (and themselves) with others.  Valuation is an important measure of your business, but don’t let it blind you to other financial aspects of your business.  This is especially true when negotiating with investors.  You need to look at all the terms in the term sheet (the term sheet is a summary of the terms of the proposed deal), not just valuation.  Some investors might give you a high valuation, but offset that with high dividends, liquidation preferences, and anti-dilution clauses.  On the flip side, you might be offered a lower valuation, but there are friendly preferences and dividends that could lead to a better financial outcome.

Confused?  Grant Collingsworth from Morris, Manning, and Martin visits ATDC each year to speak on this subject.  He has prepared a great document that explains the terms and what they really mean.  This is a must read if you are planning on raising money.  You can download it from our Entrepreneurs Resource Center here.

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