You can add some structure to the deal if the gap is not massive. Either with a potential valuation uplift based on performance or a liquidation preference are factors that could mitigate risk of founders/VCs and allow for a bridge to the gap. If the gap is larger and there seems to be no bridge, consider alternative financing mechanisms if possible (CLN, royalties, venture debt)

When negotiating valuations with startup founders, shift the focus from ownership percentages to the company's overall value and growth potential. For example, Elon Musk owns only about 13% of Tesla but is still one of the wealthiest people in the world. This demonstrates that a smaller ownership stake in a highly valuable company can be more rewarding than a larger stake in a less successful one. By emphasizing how your collaboration can enhance the company's success, you can bridge valuation gaps and align both parties toward common goals.

On top of my colleague's contributions, I'd would highlight the importance of the term sheet. Different valuation reflects different perceptions about uncertainty, so a good term sheet may address different scenarios, like revenue tranches, down rounds etc. Term sheets are not crystal balls, and will never eliminate uncertainty, but, by creating agreed rules for different performance landscapes, it may reduce the gap in expectations, thus reducing the gap in valuation.

To bridge the gap in valuation expectations with startup founders, I focus on clear communication and transparency: Data-backed valuations: I present comparable market data and key financial metrics to ground discussions. Aligning growth milestones: I connect valuation to achievable goals, ensuring both parties see the upside in future value creation. Flexible structures: Offering alternative deal terms, such as earn-outs or convertible notes, can close valuation gaps without immediate compromise. Building mutual trust through these strategies ensures both the investor and founders feel fairly represented.

When negotiating a startup founder's valuation, it's essential to strike a balance between ambition and reality. Begin by anchoring the conversation in data—market comparisons, current revenue, and future growth projections. Focus on the startup’s market potential, product traction, and the team’s experience. Be transparent about assumptions behind the valuation, ensuring both parties are aligned on future expectations. Emphasize the importance of long-term partnerships over short-term gains. Keep the conversation constructive, offering a valuation range to show flexibility and invite a dialogue rather than a standoff.