“What we want to do in the venture capital business is take a lot of
risk (which should be rewarded with a low entry valuation) and then
actively mitigate the risk we took as much as we can (thereby reducing
the risk for future investors and increasing the valuation).
It’s the same thing that entrepreneurs want to do. When they leave
their safe job and go out on their own, they are taking a lot of risk.
Their entry valuation should be zero, meaning they (collectively if
they have partners) own 100% of the business for whatever startup
capital they invest.
By the time they offer equity to new investors, they should have
reduced some of the risk. By developing a product, or by developing a
technical and operating plan, by attracting other talented people to
the team, or by getting customers and revenues (and sometimes even
–VC Fred Wilson, writing about risk and rosk mitigation on his blog