We've seen this too many times that I feel it's worth putting it done on paper so that entrepreneurs don't come to us with the wrong expectation.
Simply put, in the two following scenarios of offering from investors
- $200k investment @ $20M valuation
- $2M investment @ $10M valuation
always pick the 2nd one. Startups need cash. Valuation on the paper is not cash. Without cash the startup will die. Without high valuation the entrepreneurs only mostly suffer from a bruised ego.
And ego is cheap, if not worthless.
Note that any time of the day you could run into a random rich guy that appears to love your startup at the first sight like no one else. However, by taking his $200k (which means nothing to him) for a $20M valuation could block other real value-adding VCs to join the round.
Worse, it might block the next round completely as well if you can't grow the company fast enough to justify a valuation higher than $20M in the next round.
And rest assured that this $200k@$20M investor won't be incentivized to help you if you run into trouble, either in running the business or in raising further rounds. $200k is nothing to him.
And for sure you burn through the $200k much faster than you burn through the $2M.
If you still couldn't figure this out after reading this article, I'm happy to offer you, effective immediately, $1 for 0.0000001% of your startup, regardless of what it does. This investment will make you a Unicorn immediately at $1B post-money valuation.
Now come take it.