Question: A startup receives two term sheets for a Series B round from two different VCs: VC-North, a top-quartile VC, and VC-South, a middle-of-the-pack VC. The

A startup receives two term sheets for a Series B round from two different VCs: VC-North, a top-quartile VC, and VC-South, a middle-of-the-pack VC. The two term sheets have identical terms (including identical investment amounts), with only one exception: the term sheet from VC-North values the startup at a post-money valuation of $10 million, and the term sheet from VC-South values the startup at a post-money valuation of $11.5 million.

The founder of the startup decides: I will raise capital from VC-South because it offers a post-money valuation that is 15% higher, which will minimize my dilution.

Is the founder right in making and motivating this decision? Why or why not? What advice would you give her?

b) Consider the following statement: A term sheet for a $3 million investment that values a startup at a $3 million pre-money valuation is always better for the VC investor than a term sheet for a $3 million investment that values the same startup at a $5 million pre-money valuation. Is the statement true or false? Why?

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