🎙️ In a recent podcast episode of 20 Minute VC with guest Trae Stephens from Founders Fund, the hosts explored the topic of competitive deals. Among the many gems, one profound statement resonated particularly deeply in today's bustling startup ecosystem:
"There is something deeply troubling with #prices getting out of control that has nothing to do with the price itself - usually what an #inflated price means is that the deal is being competed and the founders believe that they have leverage." 💸
These words reveal a crucial truth: the allure of a #competitive deal can sometimes blind investors to its underlying risks. When prices soar and bidding wars erupt, it's easy to lose sight of what truly matters: the intrinsic #value of the investment 💡
Therefore, it's crucial to remember that the most competitive deals aren't necessarily the best ones. In fact, they may be the most perilous. Why? Because in the frenzy of competition, #critical factors such as team alignment and unique value propositions can be overlooked.
💬 According to Trae, the most competitive deals can be the worst ones because they are the ones that create super consensus: everyone rushed to agree on the team and on the thesis; the investment lacks an edge, and everything is going to be expensive in every financing round. Consequently, the expected value of the investment will decrease.
Our general partner Gregor Unger agrees: There are opportunities that are obviously good, everyone knows it, and someone wins it. In the past, these opportunities would float around: every investor takes a look, then someone commits to it and wants to lead, and, then, suddenly everyone jumps on board, causing the price to rise. 📈
Of course, there are instances where #competitive #deals are justified. Consider Facebook’s early-stage rounds fueled by its undeniably extraordinary growth rates and massive market. However, succumbing to the allure of competition often leads to compromising investment criteria and foregoing due diligence.
In essence, investing in startups is not merely about winning the deal; it's about securing long-term #value and mitigating risks. So, instead of living for the thrill of competition, let's focus on identifying investments with genuine potential and sustainable advantages 🚀
What do you think? Are the most competitive deals the worst? 🤔👇🏽💭
Listen to the full podcast episode here: https://lnkd.in/ezupDQNy
#StartupInvesting #VentureCapital #InvestmentStrategy #FoundersFund #20MinuteVC Harry Stebbings
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1moI completely agree that luck plays a significant role in the success of a startup, but it's not the only factor. Skill, execution, and timing are equally important.