Overvaluation Can Backfire: The Hidden Dangers of Inflated Startup Valuations
Summary
A sky-high startup valuation sounds great—until it becomes a trap. Michael Epstein explains why chasing the highest valuation can cripple future fundraising and create massive pressure to scale unrealistically.
Transcript
That's something that a lot of people don't think about either. They want to maximize their valuation as early as possible. And sure, it sounds really attractive to say, you know, I got a $1 million revenue startup and I just got a valuation of like $200 million, and I didn't have to sell, you know, a ton of my company to get it.
But the reality is those investors are expecting a return on a $200 million valuation. And if they're expecting a five times return on that, you got to be $1 billion company. And you got to grow into that. That's a lot of pressure. And if you don't, there's we don't need to get into all the ramifications of that.
But if you don't show significant growth, like people's options start becoming worthless, all of these challenges start to occur that can really take you down, as a business. So it's not always in your best interest to just maximize valuation to a point that you think is actually unreasonable. You'll never be able to raise money again. Also, without a significant down round, which means you're gonna have to give up a ton more equity.
So if things don't go exactly according to plan, again, you can you can create a lot of problems.