VC Cliche of the Week

There has been a lot said over the years on valuations in the venture business.

I read a quote by John Doerr yesterday where he supposedly said,  “If you like the founders and you like the technology, price doesn’t matter.”

I don’t know if he really said that, but I don’t agree.  I think price/valuation is critical.  My favorite line on valuation and my cliche of the week is:

The only price you know is the price you pay.

What this means is that you don’t know the price you’ll get when you sell, you don’t even know the next round price. But you do know the price you agree to pay when you invest.

Often times, the venture business takes a "momentum investing" approach and the rationale is that you can afford to pay up because someone else is going to pay even more for the next round or for the company when its sold.

I’ll add a second cliche, not one that I’ve heard anyone say other than me, but I’ll throw it out there in the hope that it becomes conventional wisdom.

Momentum venture investing is an oxymoron and anyone who does it is a moron.

To be successful in the venture capital business, you need price discipline.  At times it may mean you can’t get anyone to take your money.  And that’s OK.  Paying up for deals in the hopes that others will pay more works for a short time and ends badly.  It’s not a smart thing to do.