Paul Graham of Y Combinator fame recently posted on his website an extraordinarily comprehensive and useful essay regarding startup fundraising. You can it in its entirety here.

While he is specifically writing to an audience of startup entrepreneurs, his thoughts are well suited for anyone who is faced with the task of raising capital for their business.  I heartily recommend that you invest the 30 minutes or so that it will take you to read Paul’s essay in its entirety.  Then read it 2 – 3 more times to be sure that you give it an opportunity to soak in.

In this post I’d like to focus on his comments on valuation, and the objectives of a capital raise.

“Founders who raise money at high valuations tend to be unduly proud of it. … This is stupid, because fundraising is not the test that matters.  The real test is revenue. … Being proud of how well you did at fundraising is like being proud of your college grades.

“Not only is fundraising not the test that matters, valuation is not even the thing to optimize about fundraising.  The number one thing that you want from … fundraising is to get the money you need, so you can get back to focusing on the real test, the success of your company.  Number two is good investors.  Valuation is at best third.”

Amen, Paul.  As a startup CEO, you are responsible for setting the company vision and driving growth.  Raising capital may be a necessary part of the plan (more on that at a later date), but the capital is simply a tool that you need.  If you need to raise money, get it done and get on with execution of the plan.

Give Paul’s entire essay a read.  It’s probably the best investment of time that you will make today.