Over the last decade, I’ve interviewed and assessed more than 5,000 investment managers. One of the most important things I’ve learned in that process is what separates the great investors from the rest. The great ones view investing as a game, and they know exactly what game they’re playing. It brings to mind an observation from the philosopher Kwame Anthony Appiah: “In life the challenge is not so much to figure out how best to play the game; the challenge is to figure out what game you’re playing.”
Every marketplace should strive to drive higher-frequency usage, particularly in the early days. Sometimes the way to do that is to actually aid the supply side in lowering their transaction size so that the product becomes more compelling for the demand side. Liquidity is key. Making sure that transaction volume is thriving is more important to a new marketplace than getting the largest revenue per transaction.
In today’s fundraising climate, valuations are crashing back towards Earth, and you need to be realistic and look at public market comparables. If you’re a SaaS company and other SaaS companies are trading at 5x sales, you can’t ask for a 30x valuation. My advice: don’t walk into the room with a valuation in mind. Focus on how much you need to raise and let the investors come back to you with a number. If you are oversubscribed and have pricing leverage, I always pushed for clean terms first (no “structure”) and then look at valuation. We have consistently chosen not to optimize for valuation — even when there were higher offers on the table — because we know the true long term cost of a nosebleed valuation with onerous provisions in terms of capital strategy, team morale and board dynamics.