My new rule of thumb for entrepreneurs: Divide by 3

If a year ago, an entrepreneur was hoping to raise 3 million at a 6MM pre-money valuation.  Today, that very same entrepreneur should divide by 3 on both the money raised and the valuation. That same deal would be a 1MM raise at a 2MM pre-money valuation -- as a starting point.  This rule of thumb seems to be applying to our Founder's Co-op  portfolio. One of our companies is raising 300K at 1MM pre-money: this same deal a year ago would have been a 1MM raise at 3MM pre money.  This rule of thumb applies to money raised and valuation.
The world has also changed for two other important terms:

  • liquidation preference is often 1 times with no cap.
  • ratchet: in the event the company doesn't make progress there is often a full ratchet for future downside financings.