Someone asked if the US economy could be damaged by the high valuations startups get now, and I realized there's a natural protection against this. All the growth is concentrated in the big hits, and they are exactly the companies most able to grow into an "excessive" valuation.
Positive users agree with Paul Graham that high startup valuations are justified by power-law winners creating most value, while negative users criticize them for sending bad signals outside tech hubs and relying on hindsight.
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It's certainly true that a startup can be damaged by raising too much and/or at too high a valuation. Raising too much makes you spend too much. And a high valuation increases the chance of a catastrophic down round later on.
Someone asked if the US economy could be damaged by the high valuations startups get now, and I realized there's a natural protection against this. All the growth is concentrated in the big hits, and they are exactly the companies most able to grow into an "excessive" valuation.
So high valuations can be a problem, definitely. But the startups that matter most for economic growth (and investors' returns) are exactly the ones that high valuations are least likely to damage.
It's certainly true that a startup can be damaged by raising too much and/or at too high a valuation. Raising too much makes you spend too much. And a high valuation increases the chance of a catastrophic down round later on.
@paulg without any horse in this race, what does bother me is it sends a bad signal everywhere else outside sf. also coz how easy it has become to game the revenue (shadow deals)
@paulg Just like it's better to be overrated than underrated.
@paulg wont most small ai companies fail and the big token providers will see a dip in revenue because of it?
@paulg LOL right, but what about all the techbros who will never come close & must live off their parents, that's just extra fuel for them
@paulg Let’s hope hyperscaling works out as everything is inextricably linked.
@paulg The big winners create 90% of the value
@paulg Exactly. The power law protects the system.
Bad valuations die quietly.
The big winners are the only ones crazy enough to grow into yesterday’s crazy price.
@paulg In past cycles high valuations haven’t caused economic downturns, but they have magnified their effects.
@paulg the valley has been explaining why this time is fine since 1999
@paulg Exactly. High valuation is not the poison.
The poison is when it makes the company spend like the future has already happened.
Reality always comes back to collect.
@paulg It's only damaged by high valuations because people take forever to IPO, therefore depriving the public of any meaningful bag.
@paulg I also wanted to ask this from an expert like you, can AI bubble break like dotcom bubble ? I am not any expert, so question might be dumb
@paulg Down rounds really are *that* bad?
@paulg if the big valuation startups all depends on rented infrastructure that can be outdated in few months the natural protection may not hold.
@paulg Smart observation, big hits always find a way to justify themselves.
@paulg come on，融资估值像健身照：拍得越猛，后面越怕称重。
@paulg Markets reward the companies that keep creating real value.
Strong businesses have room to grow into ambitious expectations.
That’s why long-term execution matters more than short-term valuation.
@paulg Not every advantage becomes a liability.
The strongest businesses can turn high expectations into real growth.
Execution is what determines whether a valuation becomes a burden or a milestone.