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Comment by myroon5 | Hacker News Reader

"And while investors were happily offering it a valuation of $1 billion or more, Petersen didn’t want to get in over his head and risk a down-round later if the market stumbled."

This is straight out of Silicon Valley (the show)... why wouldn't you take the best valuation for your company?

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This is a super, super mature thing to do. VCs are trying to make multiples of their investments, so the higher the valuation, the bigger your company has to be in order for VCs to make their multiple. This means you have to optimize around growing as much as possible, which increases burn rate and can screw up your priorities. If you want to build a solid, long term profitable company, it gives you more flexibility to try different things and 'do it right' rather than focus entirely on growth.

Often there is a part you don't see here where the lower valuation has a lower amount of money you can take. Would you rather sell 10% of the company for 80M on an 800M post-money valuation or 12.5% of the company for $125M at a 1B post-money valuation if you only need 80M to hit your growth objectives with a buffer and 2.5% of the company can likely be sold for a lot more than 45M once you need that extra money. It's also not smart to publicize you're taking less money as it makes you look more under pressure in the future and if it ends up being wrong to not take the extra cash you don't want everyone knowing you could have had $45M more in the bank. It gets even worse if the post-money valuation involves 15% vs 10% which can be viable as well.

A lower valuation without strict liquidation preferences is almost always better for the company, however publicly announcing that you could've been valued for more helps attract engineers who want to profit off of startup valuation multiples.

Just because it is in the TV show doesn't mean it's not based on real stuff. Silicon Valley is satire and they have some of the best consultants in the business. A lot of stuff on the show is close to reality.

Sometimes it gets it so close I kind of cringe because I've been through similar things in real life.

The tabs vs spaces argument comes to mind.

Edit: to stay on topic. As other people said, I would take a lower valuation in a heartbeat if it gives away less equity and it is enough money to get me to another round (or exit) at a higher valuation owning more of the company.

> The tabs vs spaces argument comes to mind.

Not refuting your point in the least, but that plot line made me cringe for an entirely different reason--it characterized people who use spaces as though they actually pressed the spacebar once for each space instead of letting the editor handle the work.

That said, I think it was a good decision since the majority of the audience (based on my super scientific study where I asked my wife and friend if they knew what was weird about that scene) has no idea how text editors work and it did help to drive home the point.

Yes, that's my biggest complaint about the show in its four-season history. The whole thing was so inaccurate it made me furious.

> [press] the spacebar once for each space

Python v3.4.0 had a feature regression which hijacked TAB for autocomplete and prevented using TAB for indentation in the basic REPL. To my amazement, there was actually discussion on whether converting a TAB to 4 spaces was a worthwhile feature.

https://bugs.python.org/msg188532

Happily, the TAB was recovered.

https://bugs.python.org/msg188542

I'm guessing this is less about trying to avoid setting too high a bar, and more about taking the term sheet that offered a lower upfront valuation but with much cleaner terms and less overall deal hair.

Either way, this is super impressive from Ryan and the rest of the Flexport team. Kudos.

Parse.ly recently wrote a fairly insightful piece about their reasons for taking less funding than was on the table: https://blog.parse.ly/post/6282/why-we-said-no-vc-money/

Likely because the lower valuation comes with better terms or lower expectations.

This issue is investment ratchets and guerentees.

IE, if the company does a down round, certain investors are privileged and get their money back first, without taking any of the loss.

Imagine if you own half of a billion dollar company, and an investor owns the other half, but has full guarantees on their 500 million dollars that they invested in your company.

That means that if the company's valuation goes down to 500 million and you sell, the investor loses 0$ and gets their full investment back, whereas you are left with nothing.

Does best mean "highest" or "most accurate"?

The quote explains exactly why: the higher the current round, the more risk that the next round will be a down round.

Investment valuations are strongly related to the amount raised. Don't think of it as "this is how much we think your company is worth" but more as "we want to invest in you and we're going to set a valuation based on the amount of capital we want to invest and the ownership we want to take".

It's also bad from a hiring perspective since any incentive stock options may not have much upside unless the strike price is heavily discounted.

A host of reasons one of them being that a lower valuation is more attractive to employees looking for equity upside.

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