Are the best venture deals always expensive?

Semil Shah · Nov 21, 2022 · hedged

Hot, competitive seed rounds are probably not indicators of entrepreneurial value creation, though they are a good signal of what is at the cutting edge of product development or infrastructure

Because rounds are so competitive and everyone is fawning over the founders, there is sometimes a lack of urgency, direction and passion

Scope: 'probably not' / 'probably'; both-ways: good signal for cutting-edge tech, bad signal for entrepreneurial drive

9:01 20VC: Semil Shah on The Biggest Mistakes VCs and LPs Made Over the Last 24 Months, Why LP Churn is Coming, Core Lessons on Scaling from $1M Haystack Fund I to Today and How To Find, Win and Manage LPs as an Emerging Manager

Mike Maples · Sep 20, 2023

The hot topic of the year is a way to identify over-rotation in the present, and paying high prices lowers your probability of making money because there are fewer ways left to win

There are far more ways to make money buying something cheap that nobody wants; 'no price too high' is a bad sign and 'you couldn't give that away to me' is a good sign because it shows psychosocial dynamics at work

Scope: you can pay a high price and still make money

15:55 20VC Roundtable: Is the VC Model Broken? The Biggest Disconnect Ever Between TVPI & DPI, Why Market Size is Dangerous, Why "Go Fast" is Terrible Advice, The Dangers of Raising Large Rounds at High Prices & Why Next Year Will See the Biggest Hiring Spree i

Harry Stebbings · May 8, 2024

There is an inverse correlation between a company's eventual success and how hot its seed and Series A rounds were

Scope: based on his own portfolio observation

17:04 20VC: GV's Tom Hulme on Why Investing in Foundation Models is like Investing in "Power Stations", The Conventional Wisdom in VC that is BS & Lessons from a 24x Angel Track Record, 255x on Robinhood and Making Billions on Uber

Harry Stebbings · Oct 14, 2024

Deal heat does not correlate with deal quality — the hottest deals are the worst

Looking back at his pro-rata portfolio, the hottest deals — the five-on-twenty-fives — performed worst

58:59 20VC: Investing Lessons from FC Seeding Uber, Airtable and Coupang | Why Pro Rata is the Original Sin in VC | Why Liquidity Has Died in 2024 | Why LPs are Pissed with VCs | The Hard Truth About Seed Fund Economics with David Frankel @ Founder Collective

Gili Raanan · Mar 18, 2024

The best companies are expensive at every stage — expensive at seed, expensive at Series A, insanely expensive at Series B — and being expensive is almost part of their DNA

Observed pattern across the best outcomes; and an expensive seed is cheap in hindsight against a multibillion-dollar business

37:51 20VC: 19 Company Portfolio: 1 Decacorn, 7 Unicorns, 4 Acquisitions; One of the Best Seed Investors of All Time on How to Pick Generational Defining Founders, Why Nothing but the Founder Matters & Why the Best Investors are Never Happy w/ Gili Raanan

Shardul Shah · Sep 16, 2024

Paying very high prices in every Datadog and Wiz round was the right decision.

Conviction in the company, not the entry price, determines whether an investment works.

Scope: Wiz is not yet a realized outcome

14:43 20VC: Index's Shardul Shah on Why Market Size is a Trap | Biggest Lessons on Pricing from Leading Rounds in Wiz & Datadog | Why Benchmarks & Averages in VC are BS | How Index Makes Decisions and Why Growth & Early are the Same Investing Style

Nabeel Hyatt · Apr 4, 2025

His best deals were all highly priced; he is not a value investor

17:00 20VC: Why To Win in AI, Investors Need to Change Their Approach | Why VC is Run by Principals and Associates and is a Broken System | The Bull Case for Anthropic & Whether Deepseek Changes Their Strategy with Nabeel Hyatt @ Spark Capital

Nabeel Hyatt · Apr 4, 2025

The claim that the hottest, most competitive deals don't turn out to be the best should be rejected, because venture is an industry of exceptions and playbooks are therefore misguided

The whole business is about exceptions, so both firms and founders must accept that next week there will be an exception to everything they previously knew

17:22 20VC: Why To Win in AI, Investors Need to Change Their Approach | Why VC is Run by Principals and Associates and is a Broken System | The Bull Case for Anthropic & Whether Deepseek Changes Their Strategy with Nabeel Hyatt @ Spark Capital

Mike Maples · Sep 20, 2023

Outlier companies usually start out at low prices precisely because they are nonconsensus and right

Being nonconsensus means the market hasn't priced the opportunity yet

Scope: 'usually'

0:00 20VC Roundtable: Is the VC Model Broken? The Biggest Disconnect Ever Between TVPI & DPI, Why Market Size is Dangerous, Why "Go Fast" is Terrible Advice, The Dangers of Raising Large Rounds at High Prices & Why Next Year Will See the Biggest Hiring Spree i

Mike Maples · Sep 20, 2023

Outliers usually start out at low prices precisely because they are outliers, so the belief that high prices buy high upside and low prices mean low upside is wrong

Great companies are non-consensus and strange at the seed decision point, so the market clearing price for an unconventional idea is low; the returns came from seeing potential others missed, not from negotiating well

Scope: specific to seed stage; he frames it as a belief he is 'becoming more and more' convinced of

36:21 20VC Roundtable: Is the VC Model Broken? The Biggest Disconnect Ever Between TVPI & DPI, Why Market Size is Dangerous, Why "Go Fast" is Terrible Advice, The Dangers of Raising Large Rounds at High Prices & Why Next Year Will See the Biggest Hiring Spree i

Bill Gurley · Dec 6, 2021

Benchmark has stage discipline, not unusual price discipline — when competing for a great Series A founder it pays market.

Staying focused on early stage while others went multistage creates the impression of price discipline because Benchmark isn't doing the billion-dollar Series C and D rounds.

21:22 Apparent price discipline reflects stage discipline not a refusal to pay market price

Michael Eisenberg · Dec 6, 2021

If a venture investor needs to be the highest-priced bidder to win a founder or CEO, something is wrong with their approach; ownership, not price discipline per se, is what should be optimized for.

Being forced to pay the top price means you haven't built a good enough relationship, haven't added value before the founder took your capital, and aren't accelerating the business into the next round via reputation, follow-on capital or business development.

21:46 Needing to pay top price signals failed relationship building ownership not price is the real optimization target

Jason Lemkin · Aug 9, 2023 · hedged

The hottest startups deserve to be priced to perfection at seed, and those rounds only work for mega funds — it may simply not be a seed fund's job to invest in the obvious, high-profile seed deal

Venture used to be small enough that firms colluded to lower prices and split rounds; that's gone, so if you're the hottest startup in the world there's no reason not to be priced accordingly — which makes those deals uninvestable for small funds

19:13 Hottest deals are fairly priced to perfection so only mega funds should play seed funds should find founders earlier

Mark Goldberg · Oct 25, 2024

It is worth paying up on valuation to be in the category winner rather than owning the number two or three in a category

A lesson from Index Ventures and mentors Mike Volpi and Ilya Fishman; taking valuation risk is acceptable when you have extreme conviction in the category leader

18:23 Pay up for the category winner rather than own cheaper number two or three

Saam Motamedi · Jul 15, 2024

Great money is made by being contrarian and right, and paying twice what anyone else will pay in a highly competitive situation is as valid a form of contrarianism as finding an overlooked market

Both routes are bets against consensus; the Wiz Series A price looked astronomical and many passed on price, but the investors who funded it were right

40:29 Paying up in a highly competitive deal is as valid a contrarian bet as finding an overlooked market

Harry Stebbings · Jun 17, 2024

Pricing decisions that look obviously right in hindsight looked crazy at the time, so passes on high prices shouldn't be judged retrospectively

When Yuri Milner and DST did the Facebook round at $9B, everyone said he didn't get it, and it turned out to be an unbelievable investment

46:12 Hindsight bias makes past high price bets look obviously right though they seemed crazy at the time

Jake Saper · Mar 10, 2025

The best deals are often expensive but not always — it remains possible to be non-consensus and right and get a good price, and a firm should want exposure to both consensus and non-consensus deals

Gusto, Zoom, Yammer and Ironclad were expensive, but Veeva, SalesLoft and Federato were non-consensus at the time of investment and priced well before the zeitgeist arrived

25:22 Best deals are often expensive but non consensus deals can still be priced well