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As PG recently shared, when an investor puts money into a company it is a calculated bet that the company is actually worth _more_ than the valuation they are
by brettcvz 6y ago
As PG recently shared, when an investor puts money into a company it is a calculated bet that the company is actually worth _more_ than the valuation they are investing at. No one invests $1 for a 10% chance of making $10. So if the valuation goes up, it basically eats into an investors expected “profits”.
- pge 6y agoWhile I am not going to argue that valuations are wholly rational (and specifically the fact that valuations increase with investment size), it is also true that having more capital may make the company able to accomplish more, and thus raise the expected exit value for the investor. If so, that provides a rational basis for increasing the valuation of the company when giving it more capital. (Present valuation being the discounted future valuation)
- jjeaff 6y agoI would also add that having more/too much capital may also be the downfall of many companies.