Dear SaaStr: Does valuation play into how likely anyone would want to acquire the business from the founders?

Absolutely.  A lot.

There is no question “too high” of a valuation can discourage an acquisition. Acquirers will generally assume they have to pay more than the last round price to buy you, and often 2x-3x more:

  • Visa almost buying Plaid at $5b was 2x the last round price.
  • Adobe almost buying Figma at $20b was 2x the last round price.
  • Credit Karma at $7b was ~2x the last round price.

and some 1x-ish deals:

  • Salesforce bought Vlocity for $1.2b, a smidge more than the last round price of $1b.
  • Loom was bought by Atlassian for $975m, just under the last round price of $1.2b.

So yes, your valuation really becomes your floor price in many ways for an acquisition — in both bad ways (it’s hard to get acquired for less than last round price) and good ways (a floor for negotiation, like Figma, Plaid, etc.).

Are there ways to make an acquisition work at a materially lower price than the last round?  Yes, and the legal docs and preferences account for this.  But it’s tough.  And painful.

So whatever you do, don’t raise a round at a higher price than you are willing to sell for!

Too many founders just don’t take this seriously enough.  Raising at $100m isn’t a game, at least not entirely.  It also means you have to try to sell for at least $300m+ (3x), and at least find someone to buy you for more than $100m.  For real.  And even $100m acquisitions are pretty rare.

And the even bigger issue really is raising too much money.

As long as you sell for 2x-3x the amount you’ve raised, you can probably sort of work it out. If you sell for 10x the amount you’ve raised, you can definitely work it. If you have to, one way or another, you can sort of reprice the last round if it was too high, so long as there is enough money on the table.

By contrast if you sell for < 1x of what you raise, really no one makes any money.

Assume for each $1 you raise, you need to sell for about 10x that to make everyone happy.

A bit more here:

The 10x Rule: What Raising $1 of Venture Capital Really Means

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