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Alan Patricof on Setting the Right Valuation to Attract Follow-On Capital

April 7, 2017

Alan Patricof, Co-Founder, Greycroft on Setting the Right Valuation to Attract Follow-On Capital during LAVCA VC in NY in April 2016 in New York, NY.

This content is made possible with support from Omidyar Network and Telefonica Open Future_.

Telefonica Omidyar

TRANSCRIPT

  • English
  • Spanish
  • Portuguese

Alan Patricof: I’m trying to figure how to illustrate something… It’s a software company, and growing nicely. They needed more money and beside we do it internally, and the CEO pressed for the wrong pricing. His ego wanted that, otherwise he was going out in the marketplace and we didn’t want to waste his time, and we reluctantly, reluctantly put money in at the price.
I said to him, “You’re doing yourself a disservice because you’re going to have to go out again and you’re going to face the reality of having the valuation that may be very difficult to sustain.” And we are right now out, he’s been all over the country, and no one will pay him more than what the last round was at. One of the other things I said to him is, “having done this, you’re going out now too early because you’ve got to build time to justify the high price you got in your last round, and you’re going to be very disappointed, and you’re going to screw up the company’s image by going to see ten venture capitals, none of who will give you a term sheet at the price you like”. He’s now right in the process of licking his wounds and going back home, it’s out in the Midwest, now focusing on the business. Fortunately, he has money that they can stay around for a year or so, at least, but he raised money at the wrong time at too high a price, and you pay a price for it. If you price it a round too high, it makes it more difficult for the next round

Alan Patricof: Estoy tratando de ilustrar algo… es una empresa de software, y está creciendo bien. Necesitaban más dinero y el CEO presionó por la valoración equivocada. Su ego quería eso, de lo contrario él saldría al mercado y no queríamos hacerle perder su tiempo, y nosotros de mala gana, le dimos el dinero a ese precio. Le dije: “te estás haciendo a ti mismo un deservicio porque vas a tener que salir de nuevo y vas a enfrentar la realidad de tener una valoración que puede ser muy difícil de sostener”. Y teníamos razón, él ha estado en todo el país, y nadie le pagará más de lo que estaba la última ronda. Una de las otras cosas que le dije fue: “habiendo hecho esto, vas a salir demasiado pronto porque tienes que hacer tiempo para justificar el alto precio que lograste en tu última ronda, vas a estar muy decepcionado, y vas a estropear la imagen de la empresa por ir a ver diez VCs, ninguno te dará un term sheet al precio que te gusta”. Ahora está en el proceso de lamer sus heridas y volver a casa, está en el Medio Oeste, ahora se centra en el negocio. Afortunadamente, él tiene dinero con el que puede al menos permanecer alrededor de un año más o menos, pero él recaudó el dinero en el momento incorrecto con un precio demasiado alto, y por eso usted paga un precio. Si le cotizan una ronda demasiado alta, lo hace más difícil para la siguiente ronda.

Alan Patricof: Estou tentando ilustrar algo… É uma empresa de software, e crescendo bem. Eles precisavam de mais dinheiro e o CEO pressionou pelo preço errado. Seu ego queria isso, caso contrário, ele iria para o mercado e nós não queríamos desperdiçar o tempo dele, e com relutância, relutantemente colocamos dinheiro ao preço. Eu lhe disse: “Você está fazendo um desserviço, porque você vai ter que sair novamente e terá que enfrentar a realidade de ter uma avaliação que pode ser muito difícil de sustentar”. E agora nós estamos fora, ele tem ido por todo o país, e ninguém vai pagar-lhe mais de quanto estava na última rodada. Uma das outras coisas que eu disse para ele foi “depois de ter feito isso, agora você está saindo muito cedo, porque você tem que dar tempo para justificar o alto preço que conseguiu na sua última rodada, e você ficará muito decepcionado e irá estragar a imagem da empresa, procurando dez VCs, nenhum dos quais lhe dará um term sheet pelo preço que você quer”. Ele agora está em pleno processo de lamber suas feridas e voltar para casa, é no Meio-Oeste, agora com foco na empresa. Felizmente, ele tem dinheiro para poderem se manter por mais ou menos um ano, pelo menos, mas ele levantou o dinheiro na hora errada em um preço demasiado elevado, e você paga um preço por isso. Se você valoriza muito uma rodada, torna-se mais difícil na próxima rodada.

Alan Patricof on Setting the Right Valuation to Attract Follow-On Capital was last modified: May 18th, 2017 by Editor
Alan PatricofInvestor AdviceLatin AmericaVCVenture Capital
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Methodology

LAVCA’s fourth annual list of Emerging Women Investors in Latin American Tech includes 135 junior- and mid-level investment professionals from Latin America-based firms, as well as from global firms with Latin America-dedicated investment teams.

Every year since 2016, LAVCA solicits nominations of top women investors in tech from the investment community. In 2018, complementing the peer nomination process, LAVCA reviewed the investment teams of all active Latin American VC funds. Our inaugural list of  Emerging Women Investors in Latin American Tech had 47 investors. The list has been constantly growing – from 87 investors featured in 2019, to 97 in 2020, and to 116 in 2021.

NOMINATE AN INVESTOR

This list is not exhaustive; if you know of a junior- or mid-level investment professional working on Latin American tech deals who should be on this list, contact [email protected]

TOP WOMEN INVESTING IN LATIN AMERICAN TECH

LAVCA’s companion list of Top Women Investors in Latin American Tech includes 140 senior-level women investment professionals who are deploying capital in early and growth stage tech deals.

About LAVCA

 

LAVCA is the Association for Private Capital Investment in Latin America, a not-for-profit membership organization dedicated to supporting the growth of private capital in Latin America and the Caribbean through research, education, networking and advocacy.

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