[kimmiller]

I like to think about this criticism in the context of Twitter's recent API pullback and push towards advertising.

When a start-up raises at a valuation that is high, most assume current owners win and new owners lose. Yet I contend that everyone loses.

Setting a val that is too high means the profits needed to achieve a decent return are sky high. More importantly they are different from the early investors/founders.

How much of Twitter's recent strategy is being driven by their multi-million dollar investors (at multi-billion vals) wanting clarity on an exit plan? These guys put large quantums of money in and are pushing hard for dollars back. IMHO, they'll tank the company - all because they raised too much at too higher val.

At the end of the day it's best to have everyone in the company (post-deal) feeling like they got a good deal. Kinda like a partner/wife - you never want to feel like you're the one that's trading down in the relationship.

Same can happen at seed.

Disclosure: I invested in a YC company this round.

[veyron]

"At the end of the day it's best to have everyone in the company (post-deal) feeling like they got a good deal. Kinda like a partner/wife - you never want to feel like you're the one that's trading down in the relationship."

By definition someone is trading down. If the valuation is low, the company and its people lose out on potential money. The FB approach (extreme valuation), while discouraging most people, at least maximized value for those that liquidated at the IPO.