Earlier this month, Jijo Sunny found himself weighing two offers: An angel investor wanted to take a 1% stake in his 3-year-old creator economy startup for $500,000, at a valuation of $40 million, while a more established VC fund proposed buying a 5% stake at a far higher valuation of $60 million. He chose the lower-priced deal.
Startup founders seeking outside capital often negotiate with a singular aim: raising the most money at the highest valuation. It’s a strategy designed to fund rapid growth while protecting founders’ equity stakes. But lately, some founders have been rejecting the richest investment offers out of concern they could later stunt their company—say, by forcing the premature release of a product or by setting unachievable performance goals, which could lead investors to cut their valuation in future deals.