The second round valuation was lower than the seed round and my parents and friends were upset they lost money

The first round of seed capital for my business came from my parents and friends. It valued the company at $1m, which everyone was happy with. It quickly became obvious that we would need more cash within six months if we continued to grow at the same pace.

We met with Capital Ventures, who seemed interested in investing. We had several meetings and they asked for lots of information. After 8 weeks they said they would invest subject to the approval of their investment committee.

We did not hear back from them for a month. I called them and they said the meeting was postponed but they would get it to the committee within two weeks. Ten weeks passed and cash was getting low - we had less than 3 months left – when we heard that the investment committee had approved the investment and they would let us know the terms once they finished the due diligence. That took four more weeks and we only had a month of cash left.

They came to our office and said they wanted to buy 45% of the company at a $650K valuation and if we met certain benchmarks, they’d buy another 20% at the same valuation.

It was a disappointing offer, but we were out of cash and had to accept the offer. My parents and friends were very upset that they had lost money investing in me.

The investor suggested I learn more about finance before approaching other investors

I started a new company; I have significant industry experience, but not much experience with finance and accounting. My friend works in an investment bank has been helping me. He is very smart and I trust his advice.

He did some work me and concluded that my company was worth $4m. I have less than $100k in revenue, but I have good distribution for my products and I am the first to market. I was thrilled, but when I mentioned the $4m valuation to others, they were skeptical and warned me not to take it too seriously. But I trusted and believed my friend. It also made me feel good because it told me all my hard work was paying off.

I was ready for investment, so I prepared my business plan and my first investment deck. I prepared my financials and I used my friend’s Excel spreadsheet with the $4m valuation. The first investor rejected me, calling the valuation absurd. Another asked me to justify the valuation. I don’t know anything about finance but I told the investor my friend who worked as an investment banker prepared it. The investor suggested I learn more about finance before I approach others. Four other investors rejected me without any explanation.

I finally sent the deck to some other friends and advisors- each said the same thing. The valuation could not be justified. The real value was under $500k. I was shocked. I did not know who to believe. If the valuation was that low maybe I was not doing a good job. I own 80% of the company. One day I was worth $3.2 million dollars, the next day $400k.