Setting a valuation without killing your company

Why this matters

Fundraising is part luck, momentum, and psychology, and much of it is outside your control. Setting the wrong valuation is the one way to blow your raise that is entirely your own fault. Between Deep Checks and our fund, we've participated in or facilitated more than 10,000 fundraises, and we watch this same mistake kill companies that would otherwise have succeeded.

It's natural to assume a higher valuation is always better: your equity is worth more, you dilute less, your company looks hot. But a price that's too high bites you in one of two ways.

Failure mode 1: the reset

You start too high, the market rejects it, and you have to walk the number down. That sounds survivable. It usually isn't.

Say you see $8M seed rounds getting announced and decide to raise one too. Here's what that ignores: only about 20% of startups raise a seed at all, and only about 20% of those raise $8M or more. So an $8M ask quietly claims you're in the top 20% of the top 20%, roughly the 96th percentile of everyone out raising. And even if you never say a number, you imply one: at the roughly 20% dilution the seed market assumes, "$8M" means a $40M post-money valuation.

Your first calls go to your warmest intros and best-fit funds, the only ones with appetite for a very large round. If the pitch isn't yet at that 96th-percentile bar, they pass. You refine the pitch and lower the number, but by your third cohort of investors, they ask around, hear you've been raising for two or three months, and assume you can't fundraise. Almost everyone leans out. The round that would have closed in four weeks at a sensible price is now botched.

Failure mode 2: the time bomb

This one is sneakier, because the round actually closes. One over-excited VC hands you a term sheet at $8M on $40M, and you take it. The problem: you let a single investor set a price the rest of the market won't support, and that number is now your floor.

Eighteen months later you've hit your milestones, but the market expects your Series A in the same percentile band you started in. For an 80th-percentile seed, that's roughly $40M on $160M, and a good company often can't justify $160M. The Series A world is brutal for this: there are roughly 10x fewer Series A investors than seed investors, they're more disciplined, and only about 15% of seed companies graduate to an A within 18 months. Forced into a down round or a bridge, both of which spook investors, many of these companies simply don't raise the A. They set the expectations on themselves too high, and didn't find out for a year and a half.

The lesson underneath both stories: a valuation isn't a reward for past progress, it's a loan against future progress, and it comes due at your next round. Borrow only what your milestones can repay.

How to pick the right price

You already sized your raise in the last lesson by working backwards from the milestones that unlock your Series A. Turning that into a valuation is where discipline matters:

1. Take your raise amount and divide by 0.20 to 0.25 to get your valuation range.
2. Sanity-check it forward. At a healthy 2 to 3x step-up, is your implied Series A price one that a median-successful version of your company could justify? If it only works for the 99th-percentile version of you, your seed price is too high. Reset your milestones, or find a way to hit them with less.
3. Aim for the 50th to 75th percentile band for your stage. Not because you can't raise higher, but because staying mid-band at seed keeps the mid-band available to you at the A, which is where most investors are, and where a good-but-not-miraculous 18 months still earns you a clean step-up.

Increasing beats decreasing

If you remember one thing, make it this: it is easy to raise a valuation mid-raise and nearly impossible to lower one. Anchor high and walk it down, and every investor watches you fail in real time. Anchor reasonably and walk it up, and investors feel they have to move fast or miss out.

So start at the low end of your band and let demand push the price up, either through competing term sheets or by tranching your SAFE. And never anchor too early. You don't have to name a number in your first meetings. Let the market teach you where you price, and use those early calls for practice reps.

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

Sometimes, if you're genuinely buying bigger milestones with it. Just don't do it by inflating the whole round's price. Take a little more dilution at the same valuation, or bring the extra investors in on a SAFE at a higher cap after the round closes. Your Series A gets compared against the bulk of the round, not the cap on the small bit extra. Compare $8M on $40M with $5M on $25M: same dilution, more money, and the first looks better today, but whatever tailwind got you the higher price probably won't be there at your A.

Why this is existential in deeptech

Everything here matters more for you. A software company's price eventually snaps to a revenue multiple, so the market tells everyone what it's worth. In deeptech, your valuation runs on milestones and narrative for years, which makes it far more art than math and far easier to get wrong. And a software company can cut burn and grind through a missed round; a deeptech company usually can't, because your technology needs capital on a schedule. That makes every round existential until you have real revenue, which is exactly why one of the most important jobs of a deeptech investor is underwriting whether you'll be able to raise the next one. Price your seed at the 80th percentile and you force every investor to underwrite an 80th-percentile Series A. Most won't.

One honest note

An investor telling you to keep your valuation down reads as self-serving. But look at the two stories above: neither company failed on its product. Our returns come from your Series A happening, and then the B, and then an exit, not from a slightly better entry price on a company that never gets there. Pricing reasonably genuinely raises your odds of survival.