In August 2015, twenty four investors and I came together to form SWAN Venture Fund on the premise that entrepreneurs needed funding in the Pacific NW.

When we talked with entrepreneurs and listened at pitch meetings, we became aware of how prevalent the crazy term sheets and crazy valuations are. Over coffee, entrepreneurs would often tell me “he said/she said we’re worth this.” And I’d raise my eyebrows and explain to the contrary. Perhaps, they had read articles about companies that have received silicon valley venture financing at a certain valuation and decided their pre-revenue startup should be worth about the same. Or they’ve gotten lost in valuation discussions, gave up on trying to come to market terms, and asked for a convertible note, because it was “easier.”

In Seattle, and pretty much anywhere outside of the valley, it becomes clear to anyone who takes the time to do the research, that there are multiple private markets for equity. Angels and VCs do rub elbows from time to time, but can have different investment strategies, motivations, and therefore price startups differently. Angels and VCs use similar language, but sometimes will have different meanings and expectations. But VC’s often will have a bigger megaphone than angels, about the deals they close. So, it should be no surprise that entrepreneurs and other advisers might take their valuation cues from VC rounds. This might even lead entrepreneurs and others to believe that VC’s are the only game in town. But, if you look at the statistics, the opposite is true. Angels fund 10 times the number of seed deals than VC’s, every year.

Up to this point, the angel community hasn’t been openly pushing back on entrepreneur valuations in Seattle as it could. The terms are getting in the way of the conversation. Sticker price shock overwhelms investors’ ability to see the quality of the company. This is a private market; buyer and seller still determine equity price, but the buyer isn’t haggling and instead buys stock at sticker price. And seed-stage valuations have climbed year over year until they’ve exceeded investors’ willingness to buy. Entrepreneurs often complain that they can’t raise money because angels aren’t interested enough or have impossible-to-achieve standards. I often hear entrepreneurs say: “If I could just raise money, I’d do x, y, z. Then it would be worth so much…”

The result: entrepreneurs were having a hard time raising money. Their difficulty isn’t just because fundraising is hard, but because they aren’t pricing their offering appropriately for the angel market.

Individually, angels don’t invest enough to create leverage in the conversation for a great startup to change terms. In groups, individuals still have little leverage around deals they understand. Entrepreneurs won’t change terms for a single $25k or $50k check.

We formed SWAN because when we speak up as investors and put our money where our mouths are. Then we begin to bring valuations back to reality and deals close.