Pass High Valuations

Shaan Puri reflects on investment discipline and the importance of valuation when making investment decisions, drawing from his personal experiences. He emphasizes that chasing good companies at high valuations is a common mistake, even when it occasionally works out.

Key Points:

• Investment Discipline:

  • Better to pass on good deals at high valuations than chase overpriced opportunities
  • The difference in outcomes between investing at $8M vs $18M vs $50M vs $80M valuations is "really profound"
  • Should deploy capital primarily at lower valuations to maximize returns when successful

• Common Mistakes:

  • Falling into the "I love this business but hate the valuation" trap
  • Making exceptions for companies you've been trying to invest in for a long time
  • Letting FOMO override valuation discipline

• Real Example Shared:

  • Invested in company at $200M valuation after trying to get in since seed round
  • Company became worth billions, investment up 40x
  • Despite good outcome, admits it was "pretty dumb investment" because:
    • Only path to success was becoming multi-billion dollar company
    • Company was overvalued relative to revenue at time of investment
    • Got lucky rather than made correct decision

• Better Investment Example:

  • Investment at $5M valuation that grew to $300-400M
  • Used "sound logic and judgment"
  • Had multiple paths to good outcomes
  • More appropriate entry price relative to company metrics

• Key Lesson:

  • Stay disciplined on valuation even when you love the business
  • Better to miss some winners than consistently overpay
  • Focus on deploying capital at lower valuations to maximize upside potential