Can paying a growth-stage price for an early-stage company be justified?

Mike Maples · Sep 20, 2023

A seed round priced at $20-30M post is by definition not nonconsensus but priced to perfection, which is lose-lose: the investor won't make much money even if right, and the founder should question whether their idea is genuinely nonconsensus or merely popular

If everyone is chasing and bidding up the deal, the market already believes it will succeed, so there is no mispricing left to capture, and popular ideas have historically worked out worse for him

Scope: the more irrational the price, the worse for everyone

5:30 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

Eric Paley · Sep 20, 2023 · hedged

Companies valued at 50-100x revenue on sub-$10M of revenue almost never end up successful, because being materially overvalued at an early stage causes things to go wrong

Selection bias and capital should make these the best companies, yet he has seen it go wrong time and again; easy access to money at a stage the company isn't ready for usually destroys company value

Scope: would like to see the historical data; particularly at earlier stages

17:52 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

The argument that some markets are so big any seed price is justified is not remotely true

31:39 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

At seed, price and risk have an almost direct relationship: the higher the price you pay, the more risk takeout you should require to justify it

Paying a high price means tolerating more risk, so the risk should have been removed first — but companies with two LOIs are raising at 30 post, and a portfolio of such deals is a recipe for getting creamed even if one deal makes money

Scope: a single such deal can still make money

33:19 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 · Mar 20, 2024

A $30-35M post-money seed round for Equals was an egregious, hard-to-digest price at that stage

Despite the founders' talent coming out of Intercom, the entry price is tough at that stage

54:11 20Product: Why Process is Killing Your Product Team and How to Remove it | Three Product Decisions Every Team Needs to Make | Why the Best Companies Build Movements and Lessons from Shopify and Atlassian on How to Do It Right with Jean-Michel Lemieux

Imran Khan · Aug 26, 2024 · hedged

Paying a huge premium for a small fast-growing company like Wiz is probably the wrong decision on a probability basis, because only about five of every fifty companies that look like future tigers become one

Historically only around 10% of fast-growing companies that look like they will become giants actually do, so the probability game argues against the bet

Scope: Wiz specifically may well turn out to be a great business - 'I don't know'

24:54 20VC: Why the IPO Market is not Closed | Why Revenue Multiples are BS and Founders Need to Change | Advice From Jack Ma, Jamie Dimon and Evan Spiegel | Lessons from Taking Snap & Alibaba Public with Imran Khan

Harry Stebbings · Dec 15, 2025

The current market has investors taking genuine venture-stage risk at prices previously reserved for very mature companies, which is worrying

Scope: framed as his own worry about this stage of the market

18:50 20VC: a16z's David George on How $BN Funds Can 5×, Do Margins & Revenue Matter in AI & the Most Controversial Bet at a16z

Kyle Harrison · Oct 21, 2022

Deals priced at multiple billions for companies generating under ~$20M of revenue cannot be made to work as venture returns

Simple back-of-envelope math — projecting revenue growth over five to seven years, applying dilution to ownership, and applying current public market trading ranges — does not produce an acceptable return at those entry prices

Scope: acknowledges the math contains many assumptions

34:15 20VC: Why 75% of Active Investors Will Disappear in the Next Few Years, The Death of "So So" Venture Firms is Coming, The Rise of Blackstone of Venture Firms and What That Does To Venture Returns, How the World of LPs is Broken and more with Kyle Harrison

Jason Lemkin · Sep 20, 2023

Investing at late-seed prices of 20-30 post requires that at least half your investments be real winners, so you must believe with relatively high certainty that each company will succeed

The high entry price leaves no room for a normal seed hit rate

Scope: specific to late seed rather than early seed

32:58 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

David George · Dec 15, 2025

Paying a growth-stage price for a very early-stage company can be justified in the rare cases where the likelihood of some degree of success is extremely high because of the specific founder

With exceptional people the probability of some outcome is very high despite the early stage — as with backing Noam Shazeer at Character AI at a growth price

19:11 Justified only for a handful of exceptional founders

David George · Dec 15, 2025

Liquidation preference is almost never the basis for making an investment; the justification in these rare cases is genuine asymmetry — safe downside, extremely high upside — and the set of people who warrant that reasoning is about five people

With founders of that calibre the downside feels protected and the upside is extremely large, but such founders are vanishingly rare

20:05 Asymmetry not liquidation preference is the justification

Sumeet Gajri · Jan 17, 2020

Paying a valuation that is six to twelve months ahead of where it should be can be the right decision when conviction in the founder and problem is already very high

Conviction is unlikely to increase much between this round and the next, and if the company works the next valuation will be far higher, so waiting mainly costs you entry price

41:59 Paying ahead of schedule is justified when conviction is unlikely to increase before the next round