Supply-Demand Curves In A Founder’s Fundraising Journey

Recently, a founder asked me if he should lower his valuation in order to close his seed round faster.  His valuation was already fairly typical for the seed market.  It sounds pretty intuitive and reminds us of our Econ 101 lectures from freshman year– as price decreases, demand increases.
However, a lot of things about startups and fundraising are counterintuitive and deserve a more careful look.  I’d include changing your valuation, which is the most thrown around number during a fundraise, on that list.
In a perfect market, a lower marketing clearing price means more demand.  Why doesn’t that work in venture?  Because there’s so much uncertainty in early stage tech, investors may read the action of a price reduction as a negative signal.
Negative signaling/externality  > Founder’s benefit from price decrease
A similar thing happens in real estate, where buyers start to raise questions about houses that are on the market for too long.  Tech investors will start to raise questions about whether something is “wrong” with your startup if you lower your valuation.
Here’s the unsatisfying part of this post: there’s really too many moving parts during a fundraise to really provide “one size fits all” feedback for this situation.  Every fundraise is different and you have to carefully craft a strategy around your context.  The only takeaway here is to just pay attention and try to stay ahead of any issues by staying well informed and by surrounding yourself with enough people who can give you good feedback.
Supply-Demand Curves In A Founder’s Fundraising Journey

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