It seems like the earliest investor in a multi-party round invariably gets shortchanged in the literal dollar value of the deal. If committed investors raise the valuation of a startup, would it make sense for a startup to offer a slightly-sweetened valuation for the first investor to commit?
I understand that no one likes to have the price raised on them later, but perhaps the underlying truth of increasing valuations could be restated in a different way so it seems more like a discount to the first-in vs a price-hike to the last in.
> If committed investors raise the valuation of a startup, would it make sense for a startup to offer a slightly-sweetened valuation for the first investor to commit?
That is exactly what I did when raising seed money for dotCloud. It works great.
Our very first angel (Ash Patel from Morado Ventures) was not the first to express interest, but he was the first to actually sign a check. For that he got a better deal, as well as our lasting gratitude and permanent advertisement as "dotCloud's first angel". Everyone else in the round got identically unsweetened (but fair and attractive) terms. I was and continue to be very transparent about the arrangement, because it's very obviously fair, and doesn't make anyone feel like an idiot.
When we had the opportunity to further escalate the cost of the round, we didn't, because that didn't seem obviously fair and I didn't feel confident I could look an investor in the eye and tell him that it was. We may have left a little gravvy on the table, but in return we saved time, spared ourselves distracting drama, earned trust capital with our investors, and retained the ability to take the moral high ground in any future negotiations.
I don't claim that this is the best method. Certainly not every founder who successfully raised money did it this way. But it worked for me.
What's lost in absolute $ terms is (IMHO) more than made up for by being known as the early bird, which status will yield other opportunities. In game theory terms being early is not optimal in a single round but close to optimal in the iterated competition that more often prevails.
It is by the other investors. And the best investment opportunities come when other investors ask you to be in a syndicate for a deal they're leading. They may do this because they hope that next time you're the early-bird investor, you will remember them when you are helping form the syndicate.
I understand that no one likes to have the price raised on them later, but perhaps the underlying truth of increasing valuations could be restated in a different way so it seems more like a discount to the first-in vs a price-hike to the last in.