The Question Entrepreneurs Should Ask Themselves

Every week, someone in Silicon Valley writes an essay (or rant) questioning the sanity of investors who are pouring money into tech companies at higher and higher valuations.

I have a different question: What about the sanity of entrepreneurs who are raising more money at ever higher valuations?

Sure, a juicy valuation is hard to turn down; all founders want to minimize dilution for themselves and their existing shareholders. But in all the madness and jockeying to one-up each other in the press with headline numbers, some key logic seems to have been lost.

Consider some math. Take an e-commerce company that raises around $35 million in a Series C at an implied valuation of $250-350 million. For VCs to get a 5X return from the middle of that range, the company has to be worth $1.5 billion.