A key consideration for a company seeking venture capital financing is the valuation of the business by the venture capitalist. The higher the valuation, the less "dilution" current shareholders will
As the saying goes, valuation is an art, not a science. Venture capitalists basically analyze the existing financial condition of the company, the developmental stage of its products or services, and the company's prospects. They also consider the valuations of other comparable companies.
For example, if the average enterprise-software company is trading at 30 times earnings, the venture capitalist will use a discount of this price-earnings ratio to help value the private company it's considering for investment. Like most things, however, valuation is ultimately subject to negotiation and is ultimately subjective. If the company believes the venture capitalist's valuation is too low, it can attempt to negotiate a higher one or just decline the investment.