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"Having such high valuations at such an early stage can repel VCs from investing in a start-up, he said." Nobody goes there anymore. It's too crowded.

by pg 14y ago

hotpockets 14y ago
Khosla is simply stating the fact that some quality investors shy away from "hot/overhyped" investment opportunities. You can't argue with fact. However, some quality investors are also attracted to "hot/overhyped" startups. Which effect dominates?
- pg 14y ago
  It's not true though that quality investors shy away from high valuations. The difference between a high and low valuation for a given startup might be 3x at most, whereas the kind of startup they're hoping to fund could return 300x. The enormous multiples generated by successful startups mean there is no "value investing" in the startup business. There are no successful investors who systematically seek out underpriced startups. The successful investors are simply the ones that pick the winners, regardless of price.
  - hotpockets 14y ago
    We're just arguing different things. You're saying value investing for startups is a suboptimal strategy. (I understand your point and read swan farming and found it highly interesting.) I'm saying that may be true but that doesn't stop investors from trying. Khosla is one of these people. He appears to have just stated he was. Now maybe there are ulterior motives at play, and Khosla is lying about his aversion to superhyped startups. Basically I'm saying investors have a distribution of frugality coefficients, and was asking: what does it look like if you plot "frugality" versus "investor quality". I would guess there might be a small relationship. Even if frugality is strongly negatively associated with quality, it is still true that high valuations will turn-off some quality investors. However, the important question is not whether you turn off some good investors, but, how many good investors do you attract, period. Thus hype may still be good.
FredBrach 14y ago
I didn't get that but it must be interesting... What does it mean plz?
- 0ren 14y ago
  He's just refuting Khosla's agument and pointing out that if VCs were really repelled, then the valuations could not be high (since these are determined by the demand of the market).
- deleted 14y ago
  [deleted]
- lotharbot 14y ago
  It's a quote from a very famous baseball player/funny man Yogi Berra [0]. It's sarcastic -- normally, a place being very popular would be considered a sign of success. But Yogi describes it as a negative -- as if the place is a failure because it's "too crowded". Likewise, it's normally considered a positive thing for a company to get a high valuation from investors. This suggests that investors think the business is very valuable. But Vinod has described high valuations as a negative. PG is using a famous quote to point out that it's not something one would normally view as a negative. [0] http://en.wikipedia.org/wiki/Yogi_Berra http://en.wikipedia.org/wiki/Yogi_Berra
  - pg 14y ago
    Actually the interesting thing about that quote is that it's self refuting. It couldn't be too crowded if nobody goes there. The quote in the article is similarly self-refuting. If a startup has a high valuation, that means investors were willing to pay it.

"Having such high valuations at such an early stage can repel VCs from investing in a start-up, he said." Nobody goes there anymore. It's too crowded.

by pg 14y ago

"Having such high valuations at such an early stage can repel VCs from investing in a start-up, he said." Nobody goes there anymore. It's too crowded.

hotpockets 14y ago

Khosla is simply stating the fact that some quality investors shy away from "hot/overhyped" investment opportunities. You can't argue with fact. However, some quality investors are also attracted to "hot/overhyped" startups. Which effect dominates?

pg 14y ago
It's not true though that quality investors shy away from high valuations. The difference between a high and low valuation for a given startup might be 3x at most, whereas the kind of startup they're hoping to fund could return 300x. The enormous multiples generated by successful startups mean there is no "value investing" in the startup business. There are no successful investors who systematically seek out underpriced startups. The successful investors are simply the ones that pick the winners, regardless of price.
- hotpockets 14y ago
  We're just arguing different things. You're saying value investing for startups is a suboptimal strategy. (I understand your point and read swan farming and found it highly interesting.) I'm saying that may be true but that doesn't stop investors from trying. Khosla is one of these people. He appears to have just stated he was. Now maybe there are ulterior motives at play, and Khosla is lying about his aversion to superhyped startups. Basically I'm saying investors have a distribution of frugality coefficients, and was asking: what does it look like if you plot "frugality" versus "investor quality". I would guess there might be a small relationship. Even if frugality is strongly negatively associated with quality, it is still true that high valuations will turn-off some quality investors. However, the important question is not whether you turn off some good investors, but, how many good investors do you attract, period. Thus hype may still be good.

FredBrach 14y ago

I didn't get that but it must be interesting... What does it mean plz?

0ren 14y ago
He's just refuting Khosla's agument and pointing out that if VCs were really repelled, then the valuations could not be high (since these are determined by the demand of the market).
deleted 14y ago
[deleted]
lotharbot 14y ago
It's a quote from a very famous baseball player/funny man Yogi Berra [0]. It's sarcastic -- normally, a place being very popular would be considered a sign of success. But Yogi describes it as a negative -- as if the place is a failure because it's "too crowded". Likewise, it's normally considered a positive thing for a company to get a high valuation from investors. This suggests that investors think the business is very valuable. But Vinod has described high valuations as a negative. PG is using a famous quote to point out that it's not something one would normally view as a negative. [0] http://en.wikipedia.org/wiki/Yogi_Berra http://en.wikipedia.org/wiki/Yogi_Berra
- pg 14y ago
  Actually the interesting thing about that quote is that it's self refuting. It couldn't be too crowded if nobody goes there. The quote in the article is similarly self-refuting. If a startup has a high valuation, that means investors were willing to pay it.