Price it bitch!
3 min read

Price it bitch!

Price it bitch!

Venture capital operates in the realm of imagination and experimentation, where precision takes a backseat to vision. The numbers—$5 million seed valuations, multi-million-dollar Series A rounds—aren’t rigid truths. They’re hypotheses, attempts to chart a course in the fog of the future. Let’s untangle the fundamental misunderstanding between asset pricing and portfolio pricing, and why this distinction matters profoundly for anyone shaping the future of innovation.

Asset Pricing: A Misguided Obsession

Imagine trying to quantify the potential of a sapling in a redwood forest. You can measure its height today, but you can’t see the centuries of growth, storms, and sunlight ahead. This is the folly of asset pricing in venture capital. Startups, like saplings, are raw potential. That $5 million valuation isn’t a statement of current worth—it’s a placeholder for ambition.

Traditional finance thrives on metrics—revenues, comparables, historical data. But startups are creatures of the unknown. They defy neat equations. Their worth today is practically irrelevant because their true value lies in an unwritten future. Pricing them is like trying to sketch the Mona Lisa with a single line—it’s inherently incomplete.

Venture Capital Is Future Crafting

Here’s the truth: venture investing isn’t about the present; it’s about the possibilities of tomorrow. When you see a $5 million valuation, don’t think of it as a price tag—think of it as a signal. It says, “This idea, this team, this potential deserves attention.”

But this future-oriented approach isn’t just optimism. It’s systematic. Venture capital bets on a portfolio, not a single startup. Out of 100 investments, 99 might falter, but one success—a transformative, industry-defining success—can return 1000x and make the entire portfolio worthwhile. That’s the magic formula: focus on the portfolio’s potential, not the accuracy of any single valuation.

The Power Law: Nature’s Blueprint for Venture

The universe loves the power law. It governs galaxies, ecosystems, and venture returns. Most outcomes cluster in the mediocre middle, but a rare few explode into extraordinary significance. Think Uber, SpaceX, or Google—a handful of breakthroughs outshines the combined failures of countless experiments.

For venture investors, understanding the power law isn’t optional. It’s the foundation. The game isn’t about avoiding failures; it’s about capturing that singular, monumental win. This changes everything about how you think of valuation. You don’t need to price every asset perfectly. You just need one to bend reality.

Startups: The Universe’s Raw Code

Startups are like the genetic code of the economy. They hold infinite possibilities, untested and full of surprises. Children are a fitting metaphor here. A child’s future is unknowable. They could be anything, from an artist to a scientist, from a dreamer to a revolutionary. You don’t parent based on what they are today; you parent based on what they could become. Startups demand the same patience and belief.

Their immaturity is precisely why they’re invaluable. They haven’t been shaped—or constrained—by the past. They’re experiments in potential. Only when they mature do we get to see if they’ll change the world. Until then, trying to pin down their value is an exercise in futility.

Lessons for Silicon Valley and Beyond

For investors, entrepreneurs, and dreamers, the key takeaway is this: the inability to price individual startups isn’t a bug. It’s the system’s strength. The portfolio approach—betting on a diverse array of possibilities—aligns with the nature of transformative innovation. Here’s what this means in practice:

  • Failure Is the Default: Most bets will fail. Embrace it.
  • Optimize for Outliers: Seek the wild, audacious ideas that could reshape industries.
  • Ignore Valuation Noise: A bloated seed valuation doesn’t matter if the startup hits escape velocity.

A Universal Framework

This isn’t just about venture capital. The portfolio mindset transcends industries:

  • Art and Creativity: Most songs, films, or books are forgettable, but one masterpiece can redefine a generation.
  • Scientific Discovery: Thousands of failed experiments lead to a single breakthrough that redefines what’s possible.
  • Technology Development: Most prototypes never see the light of day, but one breakthrough can create an entirely new market.

These patterns reveal a universal truth: progress is uneven, messy, and wildly unpredictable. The goal isn’t precision; it’s positioning.

The Art of Seeing the Unseen

Steve Jobs once said, “You can’t connect the dots looking forward; you can only connect them looking backward.” Venture capital is about acting before the dots connect. It’s about seeing the unseen, believing in the improbable, and betting on the extraordinary.

So forget trying to price startups perfectly.

Forget obsessing over valuations.

The game is bigger than that. It’s about crafting the future, one imperfect, audacious bet at a time.