What decides the outcome of a startup valuation negotiation?

The way the founder shapes the investor's perception decides a large part of the outcome, often more than the facts themselves. Two founders can present the same investment case and end up with very different deals.

I saw this in 2017 in a negotiation workshop I organized for senior venture capital investors (VCs) at Microsoft ScaleUp, Microsoft's program for startups. An international negotiation coach ran a role-play. The VCs worked in pairs. One played a founder who wanted to sell a startup. The other played the M&A manager of a corporation that wanted to buy it. M&A stands for mergers and acquisitions, the team that buys companies.

Every pair received identical information: the startup's revenues, the buyer's criteria, the same base facts. The results:

• Some pairs: no deal at all.
• Other pairs: a sale at $10 million.
• A few "founders": a sale for more than $500 million.

The facts were the same in every pair. The difference came from how each "founder" communicated, negotiated and shaped the perception of value. I wrote about the workshop in Perception trumps reality.

Should you justify your valuation to investors?

State the valuation as a demand and leave out the justification. Matthias Schranner made this distinction on my DEALMACHER podcast. He is an FBI-trained hostage negotiator and advises governments and the United Nations.

His point: an argument invites a counter-argument. A demand does not. The sentence that gets founders in trouble sounds like this: "Our valuation is X, and here's why." When you explain why your price is justified, the investor explains why it is not. Then you trade rebuttals. In Schranner's words:

"The moment you argue, you get a counter-argument – and then you're fighting, not negotiating."

A demand needs a storyline instead of a justification. The storyline is the same narrative you use when you pitch the vision. You carry it all the way to the number, so the price reads as the logical next line of your story. The full reasoning is in Demand, Don't Argue.

What should you do after you name your valuation?

Stop talking. Say the number, hold eye contact and wait for the other side to answer.

Schranner describes the common pattern: people present their number and then keep going. They explain, soften and fill the silence. "And then they keep talking – and they destroy everything they just built."

Silence after your own demand feels like exposure. The instinct is to show your reasoning. Each extra sentence is a small retreat, and you negotiate against yourself before the investor has said a word.

Schranner frames negotiation as testing. You place a position on the table and watch what comes back. A demand works as a probe and leaves you room to move. An argument is a position you then have to defend.

Can a founder set the valuation in a funding round?

Yes, when demand from investors is strong enough. Chrono24, the world's largest marketplace for luxury watches, did it in every round. Its co-founder Tim Stracke described the method on DEALMACHER:

1. Start quietly: a warm introduction, a conversation about the vision, nothing in writing.
2. Collect informal commitments: investors who like what they hear give a non-binding yes, and Stracke keeps them updated.
3. Wait for enough demand: he continues until these commitments add up to three to five times the planned round.
4. Send your own term sheet: only then does he call everyone back. Chrono24 sent the term sheets itself, with the valuation already filled in. A term sheet is the short document that sets out the main terms of an investment.

"We always set the valuation," Stracke said. That held even in a round of more than 100 million euros. Some investors crossed out the amount and wrote in a bigger one. One of them still lost: Chrono24 chose the investment firm General Atlantic, because it was best placed to help with a possible stock market listing (IPO). The story is in Why Chrono24's Co-Founder Trusts Patek Philippe More Than Central Banks.

When does price matter less to an investor?

Price matters less when an investor strongly wants to be in a company. Filip Dames, Founding Partner of the venture capital firm Cherry Ventures, described both sides on DEALMACHER. Cherry has backed companies like Flixbus, Auto1 and Proxima Fusion.

• Discipline: Cherry targets around 15% ownership, sometimes 20 to 25%, often less.
• Exceptions: with an extraordinary team, Cherry sometimes pays a price that is "way too expensive". Dames says these exceptions were mostly the right decision.
• Market: most of the money flows into a small group of companies. Inside that group, price barely matters. Outside it, even a very good company gets surprisingly little.

Dames also warns about early interest that sounds stronger than it is. A preemptive offer is a term sheet an investor sends before your round formally starts. His line: "You have not been preempted until you have been preempted." Until a term sheet arrives, a fund that "might preempt" is having a coffee chat.

How do you prepare for a valuation negotiation?

Prepare the story, the demand and your own behavior in the room. The examples in this guide point to five steps:

1. Build the storyline: it leads to your number the way a good story leads to its ending.
2. Create demand before you talk numbers: informal commitments from several investors give your number weight.
3. Write the number down: in a term sheet, if demand allows it, as Chrono24 did.
4. Say it once and wait: no explanation, no softening, no filling the silence.
5. Count only written offers: a fund that "might" preempt has made no offer yet.