How should entrepreneurs approach the valuation question?
We would suggest the entrepreneur approach the question of valuation from a balance standpoint. Too low a valuation and the entrepreneur may risk being unfair to her/his self by giving away too much of the company. Additionally, significant founder dilution after multiple successive lower valuation rounds, may result in the entrepreneur having too little skin in the game for late investors to want to “join the party”. You don’t want to fizzle out due to a lack of investor interest because of their belief that the key parties, (the founders) are not incentivized.
On the other hand, high unreasonable valuations are likely to cause many investors to just ignore the opportunity. It reveals a naive entrepreneur, one who may not possess the experience to execute. If the investors are naive and invest at too high a valuation, the next round may be a down round, which may result in the initial investors becoming unhappy investors in the intermediate term.