How to set a seed valuation without killing your company

Setting a valuation too high is one of the most common ways founders blow a fundraise. It can kill the round you're raising, or quietly kill the one after it. We tell founders this constantly. Too many ignore the advice. So we wrote a whole guide on it.

Between running Deep Checks and investing through our fund, Julian Capital, we've facilitated or participated in 10,000+ startup fundraises, and we've seen everything you can imagine. Fundraising is an art—a game of luck, momentum, and psychology. Much of it is outside your control. But setting the wrong valuation upfront is the one way to blow your raise that is entirely your own fault.

A valuation that's too high can be a death sentence. It bites you in one of two ways:

1. The reset. You start your raise too high, the market rejects it, and you have to reset to a lower number. Now you're on your back foot: you've burned your best intros, and raising the lower number is many times harder than if you'd just started there.
2. The time bomb. You do close the round at the high valuation but—and this happens constantly—for reasons in or outside your control (execution, markets, sentiment), you don't accomplish enough to warrant a meaningful step-up (2x+) in valuation at the next round. So your next raise now has to look like a “bridge” or a down round, which greatly spooks investors, and these rounds often fail to come together: Carta’s data shows bridge rounds have poor success rates for VCs, and they get priced accordingly. 

It's fair to assume a bigger valuation is better: your equity is worth more, you dilute less, your company looks hot. Massive rounds get announced every day (though many of those headlines quietly bundle several valuations into one number, meaning the founder gave up more equity than it seems). But VCs know this dynamic intimately, and we fear it, because it kills companies that would otherwise have succeeded. Here's how it plays out.

Failure mode #1: The reset

A company we know (we won't name names) saw endless funding announcements for $6M, $8M, $12M seed rounds and decided they should raise an $8M seed too because it seemed “in range” of what the market would support.

Here's what this founder neglected: only ~20% of startups succeed at raising a seed round at all, and of those that succeed, only ~20% raise $8M or more. As a round, $8M is 80th percentile among seeds that close, but by asking for it, they were claiming to be a 96th percentile startup among everyone out raising (top 20% of the top 20%).

And note: even if you don't set a valuation, you imply one with your ask. At seed, the market assumes ~20% dilution. Asking for $8M means asking for a $40M post-money valuation (whether you ever say that number out loud or not).

The first week of calls was lukewarm. The pitch was still coming together and didn't meet the 96th percentile bar VCs expect at that price.

Those first calls burned through their warmest leads, best-fit funds, and tier 1 multi-stage firms (usually the ones with the greatest appetite for very large seed rounds). Next came the top early-stage funds. These funds are valuation sensitive, and they recommended a smaller round. By the time the founder came to terms with $5M and had ironed out the pitch, they were on their third cohort of VCs. That refined pitch at that price would normally have gotten this cohort excited, but when the VCs asked around, they learned the founder had been raising for 2–3 months and everyone they respect had already passed.

VCs commonly ask around. And when they see you’ve been at it for a while, they assume you can’t fundraise well, and almost everyone leans out.

We’re not exaggerating. Go ask a good VC.

Out of options, the founder went back to the second cohort offering $4M at $20M post—a round those funds would have happily done three months earlier. But they'd moved on, now worried about the founder's ability to run future rounds. The round was completely botched.

Lesson: If they had started with something closer to the median in today’s market, say $4M on $20M, they would have closed in four weeks and gotten back to work.

Failure mode #2: The time bomb

A founder succeeded in raising $8M on $40M. They were surprised how easy it was. One of the first VCs they met was trigger happy and issued a term sheet right away. 

The problem: they let a single over-excited VC set a valuation the rest of the market wouldn't support. Worse, that number was now their floor—any future up round would require incredible progress. Most founders never clear that bar.

Eighteen months later, the company had hit its milestones. But the market now expected them to raise in the 80th percentile again because of their starting valuation—for a Series A, that's $40M on $160M. 

The company was good, but it couldn't justify $160M.

And here’s what a lot of founders don’t realize: There are roughly ten times fewer Series A investors than seed investors to raise from. 

That ease—the seemingly limitless number of funds to pitch—was an anomaly of the seed market. There are FAR fewer investors at Series A! They’re often sector specialists, unlike the vast number of generalist seed investors, and more disciplined on average. So suddenly you only have 30 VCs in the world you can pitch.

Only ~15% of seed-stage companies graduate to a Series A within 18 months. Even if you succeed with a high valuation now, it's a lonely world at the A, when only a handful of funds can tolerate the valuation you now need. Today’s hot round is tomorrow’s cold soup. 

Back to our founder. They soon realized they needed more milestones to earn even a reasonable 2x step-up from their seed price. And having grown used to being flush with cash, they needed at least $25M to hit those milestones—meaning an $80M pre-money round, or $105M post. But burn was now $350K per month with six months of runway. Cut the team, and they can't hit the new milestones. Bridge, and they become spoiled goods. They didn't raise an A.

By raising the $8M seed, they had closed almost every door to their Series A. They set expectations too high. They killed the company—and didn't find out for another 18 months. It was a ticking time bomb.

Lesson: A valuation isn't a reward for past progress—it's a loan against future progress, and it comes due at your next raise. Borrow only what your milestones can repay.

How to pick the right valuation

Okay, enough fear-mongering—you get the point. 

Let's talk solutions.

Start with the next round in mind. 

Don’t treat your valuation as a scoreboard—think about it as setting expectations for your next round. 

Work backwards:

1. Define your Series A milestones. What do you need to prove for Series A investors to fund you? In deeptech: technical de-risking plus real commercial validation, usually.
2. Calculate the minimum capital needed to hit those goals, plus a 6–12 month buffer. The buffer covers slipped timelines and the 3–6 months a Series A raise itself takes. This number is your target raise amount. Don’t anchor on a number you saw in a press release, a number your founder-friend was able to raise, or a number an investor told you to target.
3. Keep dilution at about 20%. Divide your raise by 0.20–0.25 to get your valuation range. Need $4M? You're raising at roughly $16M–$20M post. Sometimes you can get better terms, but a lower starting price draws more investors in, more investors means competing term sheets, and competing term sheets—not negotiating skill—are what win you better terms.
4. Sanity-check it forward. If your seed lands in a given percentile band, the market will expect your A in a similar band. Ask: at a 2-3x step-up from this valuation, is my Series A price one that a median-successful version of my company can justify? If the answer is only yes for the 99th percentile version of your company, your seed price is too high—reset your milestones or get more creative on how to achieve them with less.

Aim for the 50th–75th percentile valuation band for your stage. 

Not because you can't raise higher—you often can—but because staying in the middle bands at seed keeps the median bands available to you at the A. That's where most of the investors are, and where a good-but-not-miraculous 18 months still earns you a clean 2x+ step-up.

Note: Series A valuation bands vary dramatically by sector and geography. If you're a medical device company in the midwest, don't set your targets against bay area AI foundation model benchmarks.

"But shouldn't I raise more when terms are favorable?"

Maybe—there can be real value in raising more when the market is offering it, as long as you're buying bigger milestones. But you have to balance it against failure mode #2. 

While it might seem counterintuitive, if you think you need more capital to safely hit your milestones, then give up a bit more dilution at the same valuation rather than raising the entire round at a higher valuation. Or bring the extra investors in on a SAFE at a higher valuation after the seed round is closed. Your A will be compared against the bulk of the round, not the valuation cap on the little bit extra.

Compare $8M on $40M with $5M on $25M. Same dilution, more money—in the short term, the first looks better. The catch: whatever transient tailwind got you the higher seed price (the hot sector, the YC demo day bump) probably won't be there at your A.

Increasing > decreasing

If you remember one thing from this guide, make it this: it is easy to raise a valuation mid-raise and nearly impossible to lower one.

Most founders think: "I'll shoot for the moon and land among the stars." That's how you're taught to do everything else in startup land—set audacious targets, fall short and still achieve something monumental. 

Fundraising is the opposite!

When you anchor high and walk it down, every investor watches you fail in real time. When you anchor reasonably and walk it up, investors feel like they have to move quickly or they’ll miss out.

This asymmetry tells you how to manage both failure modes:

• To manage the reset risk (#1): start your raise at the low end of your band and increase the price if the raise is going really well—either through multiple competing lead term sheets or by tranching your SAFEs (raise your first chunk at one cap, then raise subsequent chunks at higher caps as demand builds). VCs won't be offended; if anything, it incentivizes them to move fast.
• To manage the time bomb risk (#2): don't get carried away with #1. A raise going well is not a mandate to sprint to the top of the valuation chart. It's an option—check it against your Series A band before exercising it.

Two useful notes:

1. Never anchor too early. You don't have to name a number in your first meetings. Let the market teach you where you price—early calls are for gathering data and getting practice reps.
   
   
2. Sequence your meetings. Start with VCs you care less about to refine the pitch, and work your way up to your ideal investors (in the middle of your list, not last). Your dream fund should hear pitch v12, not v1. (This matters doubly for valuation: by the time you're in front of your best-fit leads, you'll know from earlier conversations whether your number is landing or scaring people off.)

In deeptech, the next round is existential

Everything in this guide matters more in deeptech, for two reasons.

First, early stage deeptech valuations usually aren't anchored to revenue benchmarks. A software company's price eventually snaps to an ARR multiple—the market tells everyone roughly what it's worth. In deeptech, your valuation is based on milestones and narrative for years, which makes setting it far more art than math, and far easier to get wrong.

Second, those milestones run longer before you reach revenue that could make you default alive. A software company can cut its burn and grind through a missed round. A deeptech company usually can't—your technology needs capital on a schedule, which means every round is existential until you're generating real revenue. That's why one of the most important jobs of a deeptech VC is underwriting whether you'll be able to raise the next round. When you price your seed at the 80th percentile, you're forcing every investor who looks at you to underwrite an 80th percentile Series A. Most won't.

Yes, we know how this sounds

An investor writing "keep your valuation down" reads as self-serving—it helps us get a better price on our next deal. But we give this same advice to every company in our portfolio, even though it will lead to a smaller mark-up for our fund.

Look back at the two stories above. Neither company failed because of its product. They failed because they chose valuations that set the expectations on them too high. Advising founders to price reasonably genuinely raises the company's probability of success. Our returns come from your Series A happening and then the B and then a successful exit, not from getting a better entry price on a company that never gets anywhere.

Price your round so the next one is achievable. Start low, let demand move you up, stay in your band, and get back to work.

Recap

• Setting your seed valuation too high kills startups in one of two ways:
  
  1. The reset - the market rejects your high ask, you burn through your best investor leads, and by the time you lower the price, VCs hear you've been fundraising for months and bow out. 
  2. The time bomb - you close the high round, but 18 months later you can't justify the 2x+ step-up needed for a Series A. You're stuck choosing between a down round or a bridge, both of which spook investors and often fail.

• Work backwards from your Series A milestones: figure out the capital needed to hit them (plus 6–12 months buffer), then divide by ~20-25% dilution to get your valuation.
• Aim for the 50th–75th percentile valuation band for your stage. Not because you can't go higher, but because it keeps a realistic Series A within reach.
• If you need more money, take more dilution at the same valuation (or add a SAFE after closing) rather than inflating the whole round's price.
• Start at the low end and let demand push the price up. Increasing a valuation mid-raise creates FOMO; lowering one makes investors go cold. 
• Tell investors how much you want to raise, and let the market come back with valuations. 

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—Julian, Jacob, and John from the Julian Capital team

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