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"Chris is doing something very smart: he’s fishing in a smaller pool. There may be fewer fish, but he’s got them all to himself." This is the mistake. This p

by pg 14y ago

"Chris is doing something very smart: he’s fishing in a smaller pool. There may be fewer fish, but he’s got them all to himself." This is the mistake. This pool is not merely smaller (that may not even be the case), but investors in it have a lower ratio of value to cost. Which is precisely the reason someone who fishes in this pool has it all to himself. I.e. the argument here is not akin to "Since this restaurant is too crowded, I'll go to that other equally good restaurant that's empty, but rather "Since this restaurant is crowded, I'll go to that other one that is deservedly empty." I find it odd to be arguing this side of the case, because I'm usually the one telling founders not to chase high valuations. But these arguments are simply fallacious.

kelnos 14y ago
Chris states repeatedly that part of his experiment was to see if he could find valuable (non-"deservedly empty") investors, and it seems that he has. This may not be a good general strategy that everyone can emulate, but it appears that it can work in some situations. He also marveled that he closed the funding round in just a few days. I constantly read here and elsewhere that one of the huge pain points when you're looking for funding is that you spend so much time dealing with fundraising that you have to drop the ball on developing your actual product for a while. Courting quality investors that tend to be priced out by many startups with high valuations could reduce that problem's impact. Again: I recognize that this certainly isn't a general solution that every startup can pursue. But it sounds like you're dismissing it in general. Then again, I'm just an armchair non-entrepreneur commenter who has never faced any of these problems. ;)
- pg 14y ago
  As I said earlier, there are also helpful investors who are willing to buy stock at high valuations. Which means those who aren't have a lower ratio of value to cost. And lowering one's valuation is not an automatic way to make a round close faster. I've watched literally hundreds of startups both succeed and fail at raising money, and as a rule, if investors don't want to invest at a valuation of x, they don't want to invest at x/2 either. All that's really going on here is that Chris is mistakenly generalizing from a single data point.
  - kelnos 14y ago
    Makes sense. If you don't think a company is going to succeed at a particular valuation, you're not likely to change your mind for half the cost. My assumption was that there's a group of investors that would love to invest, but just don't have sufficient capital to do so at the valuations companies are getting. But I guess that's too small a number -- especially when you consider that you want quality investors, too, which shrinks that pool -- to be a general solution, as you say.

by pg 14y ago

kelnos 14y ago

Chris states repeatedly that part of his experiment was to see if he could find valuable (non-"deservedly empty") investors, and it seems that he has. This may not be a good general strategy that everyone can emulate, but it appears that it can work in some situations. He also marveled that he closed the funding round in just a few days. I constantly read here and elsewhere that one of the huge pain points when you're looking for funding is that you spend so much time dealing with fundraising that you have to drop the ball on developing your actual product for a while. Courting quality investors that tend to be priced out by many startups with high valuations could reduce that problem's impact. Again: I recognize that this certainly isn't a general solution that every startup can pursue. But it sounds like you're dismissing it in general. Then again, I'm just an armchair non-entrepreneur commenter who has never faced any of these problems. ;)

pg 14y ago
As I said earlier, there are also helpful investors who are willing to buy stock at high valuations. Which means those who aren't have a lower ratio of value to cost. And lowering one's valuation is not an automatic way to make a round close faster. I've watched literally hundreds of startups both succeed and fail at raising money, and as a rule, if investors don't want to invest at a valuation of x, they don't want to invest at x/2 either. All that's really going on here is that Chris is mistakenly generalizing from a single data point.
- kelnos 14y ago
  Makes sense. If you don't think a company is going to succeed at a particular valuation, you're not likely to change your mind for half the cost. My assumption was that there's a group of investors that would love to invest, but just don't have sufficient capital to do so at the valuations companies are getting. But I guess that's too small a number -- especially when you consider that you want quality investors, too, which shrinks that pool -- to be a general solution, as you say.