As an entrepreneur, I think higher valuations are usually better. Or perhaps I should say lower dilution is better.
But I have learned my lesson on this a little bit. In my first startup, Standard Treasury, we were a relatively hot company coming out of YC in the summer of 2013. That was a mistake, likely, but there was buzz.[1] We chose a party round at a higher valuation ($15M) rather than an offer from Keith Rabois and Dana Stalder to split the round (at $8M) and join the board. We might have still failed, but we were young, and they likely would have helped.
At Meanwhile, we optimized for slightly different things as we mostly wanted to be left alone but we did take the lower seed round valuation offer. Sam Altman and Lachy Groom offered to do our first seed of $7M on $28M. We had offers at $35M, and I bet we could have pushed it even higher with others. However, Sam and Lachy stuck to that price; they wouldn't go higher. We knew they would be easy to work with, so we went with them (we didn't know that Sam would become such a master of the universe at the time).
However, today, I have gained a new appreciation for the entry price and its implications for investors, and I now understand why Sam and Lachy stuck firm on valuation.
I have made seven angel investments (or so I can recall): two unicorns (Astranis, Bridge), three who have done a series A (Griffin, Kettle, and Juniper), one zombie, and one acquisition/merger (Compound). These are all tiny investments. So small folks shouldn’t have said yes!
I have no special knowledge and have gotten no confirmation on the deal, but let’s assume for a moment that Bridge is being bought for $1.1B by Stripe.
I invested $7.5k at a $40M post in their seed. Public reports are that they then raised a $40M Series A at a $200M valuation. Let’s assume that I’ve taken a thirty percent dilution.
This means something like
$7500 investment /40,000,000 valuation * .7 dilution * 1,100,000,000 exit valuation == $144k or a 19X return.
But now let’s look at Astranis. I invested $1,000 (Thanks, John! Though I may have been the first or second check[2]) at a $7,000,000 valuation. Their most recent announced valuation was said to be $1.6B.
I don't know the actual dilution; I don't have a lot of visibility with that check size! But let’s assume 30% from the Series A and Series B and then 20% from the Series C (publicly reported at $250M on $1.4B) and 15% from the Series D (publicly reported at $200M on $1.6B):
$1027[3] investment /7,000,000 valuation *.7*.7*.8*0.85 dilution * 1,600,000,000 current valuation = $78k or a 78x return, though I hope that will be even more!
Even if we rolled back the last two rounds and set the valuation equal to Bridge:
$1027/7,000,000*.7*.7*1,100,000,000 = $79k
Entry price matters, even with a lot more dilution.
I'm still going to push for the higher valuations when I can of course.
[1] At the time, YC companies pitched to their batch twice: prototype day and rehearsal day. After those pitches at the time, the whole batch voted on who they would invest in if they could — we won both votes. This was an absurd outcome and a testament to my ability to pitch over business rationality. Congratulations to the real winners of the batch: Doordash, Casetext, Webflow, and others.
[2] John and I knew each other from that S13 YC batch. He spent a few years thinking about building software businesses, a la Elon Musk with Zip2 and Paypal, and for years I was telling him he should build a satellite company. Thank goodness he did.
[3] A time before SAFEs, this was a convertible note, so I got some interest.