Spearhead
  • Apply
  • Apply
  • FAQ
  • Twitter
  • Subscribe
Cancel
  • FAQ
  • Twitter
Cancel

Jun 29 2020

Rapidly Growing Valuations Shouldn’t Scare You Off

Humans are bad at understanding exponential growth
0:52
Apple Breaker Google Overcast Spotify YouTube Download
Jun 29 2020

Naval: Good investors show their best deals to their friends, so one subtle type of social proof is when you see a group of investors who like to invest together. It means they’ve socialized the deal and it’s a hit.

There’s also the Peter Thiel rule: When a company’s valuation climbs rapidly between rounds, that should attract you, rather than scare you off, because humans are bad at calculating nonlinearities. That’s true as long as a credible or top-tier investor leads the round.

When you see a company’s valuation go up 5x in nine months, you might automatically think it’s overpriced. But that’s because your brain can’t handle the fact that a company might actually grow 10x in nine months.

It’s a highly negative sign when investors tell you to back a company that they aren’t backing themselves. Investors should not introduce companies they aren’t backing to other investors, even though sometimes naïve founders ask them for introductions.

Subscribe to Spearhead
Cancel

Related

Modal body text goes here.