When you take a business to market, the process usually starts the same way: you invite a few investment bankers to pitch you. They show up with decks, track records, and a number, which is what they think your business is worth.
Say you talk to three. Two land around $80 million. The third comes in much higher, say $100 million.
Guess who most owners want to hire?
The third one. Obviously. They’re promising the most money.
But here’s what the most experienced sellers do instead: they barely look at the number. They evaluate bankers on the content of the proposal, their connections, their track record, the buyer pool, and their skill at running a process. The valuation itself is almost noise.
Why? Because the number isn’t really a valuation. It’s an anchor. And once it’s in your head, it changes everything that comes after.
The fine line every banker walks
I actually have sympathy for bankers here. They’re stuck. Quote a number that’s too low, and you’ll hire the guy down the street who quoted higher. Quote a number that’s too high, and you’ll be miserable when the offers come in, which kills the deal that pays them.
So they walk a tightrope: high enough to win the engagement, realistic enough to (hopefully) deliver. The problem is that the incentive always pulls toward the high end. The number that wins the mandate is rarely the number that reflects reality.
And once that anchor is set, the damage is already done, before you’ve even signed the engagement letter.
What actually happens when the offers arrive
Here’s where the anchor does its real damage.
Stick with the $100M number. Your banker has been hyping it for months. You’ve internalized it. So has your board. They’re expecting $100M. So have your investors. They’ve already calculated their payouts.
And if you’ve never been through an acquisition before, congratulations: somewhere in your head, you’ve already bought the second house, paid off the mortgage, taken the family to Italy, and ordered the boat. Don’t laugh. Everyone does it.
Then the offers come in.
$85 million.
$83 million.
$84 million.
For this business, in this market, those are strong, fair offers. They’re exactly what the comps say. They’re what your other two bankers told you to expect from the start. They’re a fantastic outcome for everyone involved.
But you’re not comparing those offers to reality. You’re comparing them to $100 million.
So instead of celebration, it’s doom and gloom. The board is disappointed. Investors are quietly fuming. You start having serious conversations about “waiting two or three years for the market to come back.” Maybe the buyers are lowballing. Maybe everyone is lowballing.
And then it happens: you reject all three offers. Three fair, market-clearing offers. You walk away from a generational outcome because the number in your head was bigger than the number on the table.
The deal is dead. Not because the offers were bad, but because the anchor was wrong.
Now rewind
Same business. Same buyers. Same $85M, $83M, $84M offers.
But this time your banker had anchored you at $75M from the start.
Suddenly you’re a hero. You beat expectations by 10%. The board is thrilled. Investors are texting congratulations. Your spouse is pulling up flights to Italy.
Same business. Same offers. Same value. The only thing that changed was the number someone put in your head at the beginning.
Read that again, because it’s the whole point of this post.
Nothing about the business changed. Nothing about the market changed. Nothing about the offers changed. One scenario ends in champagne. The other ends in a dead deal. The only variable was the anchor.
You’ve seen this in real estate
If you’ve never sold a company, you’ve almost certainly watched this happen with a house.
Sellers love to hire the agent who claims they can get the most for the property. Then the offers roll in, all lower than the promised number, all perfectly in line with neighborhood comps. And the seller is furious, not at the market, but at offers that were accurate the whole time. The house sits. It gets stale. It eventually sells for less than it would have if the anchor had been right from the start.
I’ve watched friends do it with both their homes and their businesses. Same trap. Every time.
A note for first-time founders
If you’ve never sold a business before, watch out for two other numbers that look like valuations but aren’t.
Your 409A. A 409A is the lowest defensible valuation an outside firm can justify for your common stock, designed for the purpose of setting employee option strike prices. Companies have every incentive to keep it low. By design, it’s a floor, not a market price. It has almost nothing to do with what an acquirer will pay you.
Your last funding round. A primary round valuation is a forward-looking bet by an investor on what your company might be worth years from now, usually for preferred stock with liquidation preferences and other structure baked in. To an acquirer paying today, in cash, for common stock, that number is mostly irrelevant.
Neither one is your anchor. I’ve watched founders cling to their 409A or their last round as if it were a floor on what their business is worth in a sale. It isn’t. Use real transaction comps instead.
How to fix it
The fix is simple: build your own valuation, and walk into the banker meetings with that anchor already set.
What does that look like in practice? You pull recent transaction comps in your industry. You gather public multiples for comparable businesses. You factor in current market conditions. And yes, you use the numbers the bankers are pitching as data points to triangulate from, not as gospel. The output isn’t a single number. It’s a defensible range that reflects what the business is honestly worth.
You can do this yourself. AI makes it more accessible than it’s ever been. Hand the comps to Claude or ChatGPT and you can have a defensible range in an afternoon. Same trick works in real estate: feed in the neighborhood comps and let AI tell you what the house is actually worth.
But most entrepreneurs don’t have the time or experience to do it well. If that’s you, the answer isn’t to skip the step. It’s to hire someone to help you build it. Just be careful who you pick. You’re not hiring a banker. You’re not hiring anyone who wants to represent you in the actual sale. You’re hiring an outside party with no skin in the deal, and you’re paying them for an accurate valuation, not a higher one.
That last part is the whole game. Bankers pitching for your mandate have a built-in incentive to inflate. Someone you’ve hired separately, with no deal upside, has no reason to flatter you. Their job is to tell you the truth.
Once you’ve got your range, the banker meetings change completely. You stop hiring on who flatters you with the biggest number, and you start hiring on what actually moves the outcome: their skill, their relationships, and the buyers they can put in the room.
There’s another benefit. When a banker presents their valuation, you no longer have to take it at face value. Without revealing that you’ve already done the work, you can push back. Ask how they got there. Ask which acquirers they have in mind. Ask what comps they’re using. Sometimes they’ll have a real, defensible reason for a higher number, and you’ll genuinely learn something. Other times you’ll quickly see they were just pitching high to win the engagement. Either way, you walk out knowing more about the deal, the buyer pool, and the banker themselves.
To be clear: I’m not saying you can’t pick the banker with the highest valuation. Sometimes they really are the best one. Best track record, best buyers, best fit for your business. By all means, hire them. The point isn’t which banker you choose. It’s what number lives in your head (and your team’s, and your board’s, and your investors’ heads) when the offers come in. That anchor has to be the one you developed yourselves, not the one printed on a pitch deck.
Which, not coincidentally, is exactly how you should have been choosing them all along.
Need help anchoring the valuation of your business?
Reach out. I don’t do formal valuations myself, but I help entrepreneurs find and work with the people who do, and I serve as a sounding board while you triangulate to a number you can stand behind. Best to do this before you sit down with bankers, but it works just as well after you’ve already hired one.