We tend to adjust our Valuation based on our Raise Amount and our anticipated Dilution. These 3 levers keep adjusting each other.

But how much should we expect to dilute? What’s too much? Too little?

In our first round of funding (Pre-Seed) the valuations are all over the map. That’s because there are so many sources of funding, from our parents who “just want us to do well” (on any investment terms) to some totally random stranger who wants as much equity as we’ll agree to.

These averages tend to level out quickly in the Seed Round and beyond. Our goal then is to “know” we are going to dilute within a specific range and calibrate accordingly.

In this example, if we set our Seed Round to Dilute at 15%, the challenge is that we can likely assume fewer investors will be interested. That doesn’t mean that if we set our Dilution to 50% that more investors will be interested, it just means we’ll likely turn off fewer.

A good bet is to go start slightly below the average (say 25% on a Seed Round) and begin shopping from there. Valuations can and do change over time within a fundraise, so this is typically just a starting point.