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The PropTech sector is buzzing with innovation—AI-driven property management, digital mortgage platforms, and next-gen real estate marketplaces are all attracting serious investor interest. But a growing trend is causing promising startups to struggle: pre-seed and seed-stage companies pushing for high valuations too soon.
Time and time again, I see PropTech founders trying to raise too much, too early, at valuations that don’t align with their traction. And the result? A long, painful fundraising process that slows down growth and makes the next round even harder.
If you’re a PropTech founder raising your first institutional round, here’s why overpricing your startup can hurt you—and what to do instead.
A Common (and Avoidable) Fundraising Mistake
Let’s look at a real-world scenario:
A PropTech startup is raising a $3M pre-seed round at a $15M valuation. The product is still in development, but they’ve secured pilot agreements with two midsize real estate operators. No revenue yet—just early partnerships.
They’ve been fundraising for three to four months and have only landed soft commitments for $750K. Investors like the vision, but they’re hesitant to commit at such a high valuation for a pre-revenue company.
This is a classic problem. It’s not that the startup isn’t promising—it’s that the fundraising strategy is misaligned with the current traction.
Now, let’s break down why this approach is risky.
The Math Problem: Setting Yourself Up for a Tough Next Round
Say this startup does raise $2.5M now at a $15M valuation. Everything goes well, and in a year, they hit $1.2M ARR.
What valuation will they get for the next round? Probably $18M to $22M, maybe $25M at best—assuming strong momentum.
But here’s where the real problem starts:
Investors from the last round won’t be thrilled with a flat or small valuation bump. They backed you at $15M, so they’re expecting a big step up—not just a 1.5x increase.
New investors will push back against a high valuation. If the company barely grew into the last round’s price, how can they justify a big jump now?
Founders will resist a lower valuation. If they raised at $15M last time, they’ll want $30M+ now. But if the market isn’t ready to support that, they’ll struggle, lose time, and risk running out of cash before closing.
By starting too high, they’ve boxed themselves into a valuation corner—and that’s the last place you want to be in an early-stage company.
A Smarter Approach: Smaller Pre-Seed, Bigger Seed
Instead of raising too much, too soon, here’s a better fundraising strategy:
Raise a smaller pre-seed—$750K to $1.5M at a $7M–$9M valuation.
Use this capital to build real traction (not just pilot agreements).
Get paying customers, refine the product, and prove demand.
Then, raise a proper $3M–$4M seed round at a $20M+ valuation.
With revenue and traction in hand, the valuation is now justified.
Investors see clear growth, reducing their risk and increasing appetite to invest.
Many founders worry that this means more dilution—but let’s run the numbers:
Gradual fundraising approach:
Pre-seed: $1M / $8M → 12.5% dilution
Seed: $3M / $22M → 13.6% dilution
Total dilution: 26.1%
Raising more upfront:
$3M / $15M → 20% dilution
The difference? Just 6%.
But the gradual approach dramatically increases your chances of actually closing both rounds while keeping the process efficient and founder-friendly.
Why This Works Better
1. Faster Fundraising, More Focus on Building
Raising a smaller round first is typically easier and faster—meaning you get back to actually building the business sooner.
Fundraising is a full-time job for founders—every month spent pitching is a month not spent landing customers and proving product-market fit.
2. Higher Valuation Next Round (Without the Struggle)
By raising at a more reasonable valuation now, you avoid valuation overhang—that tricky situation where you raised too high and investors won’t fund your next round unless you show massive growth.
Instead, when you hit real traction, you’re well-positioned to command a strong multiple and bring in top-tier investors.
3. Long-Term Founder Ownership
The irony is, founders who chase the highest valuation early often end up more diluted in the long run. Why? Because they either:
Struggle to raise at the next stage and take a down round (which is brutal on equity).
Waste 6+ months fundraising, lose momentum, and end up giving away more equity in desperation.
By playing the long game, you set yourself up to raise at the right time, at the right price, with the right momentum.
Final Thoughts: Fundraising is a Marathon, Not a Sprint
The goal isn’t just to get the highest valuation possible today—it’s to raise on terms that set you up for success in the next round.
A PropTech startup that raises smart—focusing on traction first and valuation second—will have a much easier time scaling, closing future rounds, and retaining ownership.
So if you’re out there raising a pre-seed right now, ask yourself:
Am I setting a valuation that helps me raise my next round?
Do I have enough traction to justify this number?
Will my next round be easy or hard because of this decision?
If you can answer those questions honestly, you’ll make smarter fundraising decisions—and avoid the trap that too many early-stage PropTech founders fall into.
Raise strategically. Build aggressively. Scale efficiently. That’s how you win.
xoxo,
Maximillian Diez, GP, Twenty Five Ventures
P.S. Stay with me on this journey.
