Benjamin Kuo’s Blog

As the high tech industry continues to react to the overall economic slowdown I’m finding that recently — on the whole — entrepreneurs are fairly upbeat about their prospects, but venture capitalists, attorneys, and other service providers seem to have hit a “recession depression” and are taking a very negative outlook towards the prospects for companies in the coming year. Aside from commentary on the overall economy, the interesting point which comes up is that there is a valuation mismatch in the market at the moment–where entrepreneurs are positive on what they are worth, capital providers are negative, and the two do not meet in the middle. I’ve heard this more than a few times — entrepeneurs looking to raise money currently have unrealistic expectations of what they are worth, and the sources of capital have much different ideas on valuation. I’ve also heard the same thing from people in the mergers and acquisition business, where multiples for private companies have plunged, but entrepreneurs are still demanding last year’s valuations.

Of course, this situation usually corrects itself fairly quickly (entrepreneurs, after beating through the bushes and trying to find capital at a few companies soon see they’re off the mark), but it’s interesting to see the lag between the impressions of entrepreneurs and the market. The lesson here: entrepreneurs, if you’re looking for money, you’re going to have to give up a lot more ownership for that capital–if you get it at all. Good luck!

This entry was posted on Friday, November 21st, 2008 at 2:13 pm and is filed under Entrepreneurship. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.