# Is over-valuation of a start up genuinely detrimental to the start up's future?

I recently watched S02E01 of Silicon Valley.

In it, having demonstrated a breakthrough algorithm, the guys are pursued by investors with increasing funding offers.

However, the founder is warned with a higher valuation, there are higher expectations of performance, and that this may make it harder for to get funding in the future when the company is more mature.

Her offer? \$20 million at a \$100 million valuation.

Naturally, Richard jumps at the opportunity, but Monica warns him against taking it to avoid a runaway valuation and potential for a future down round. After some initial resistance, Richard comes around, and decides to make Laurie a counteroffer she can't refuse: \$10 million at a \$50 million valuation.

The question is, is this a genuine dilemma for start ups, or is the rational decision always to 'take as much money as you can'?

• I am not aware of any evidence for this claim, but I would like to see some. My guess is that someone just looked at a stark correlation between high ex-ante valuation and failure, and cooked up causality. – FooBar Apr 20 '15 at 14:10
• – Alecos Papadopoulos Jul 20 '15 at 12:04