How We Invest: Part 3 - Valuations and Pricing Discipline
Read part 1 and part 2 of the ‘How we invest’ series.
As we conclude our "How We Invest" series, let's explore why pricing discipline forms a cornerstone of our investment philosophy at Good Capital.
Most startups die. The survivors must thrive.
A 10x return isn't ambition – it's pure math. With 65% of typical VC portfolios returning zero, mediocre wins don’t move the needle.
Entry price is a big factor in determining whether a successful exit delivers fund-level returns.
Entry price matters
As the first institutional cheque, we invest in companies as much as 10 years before they go for an IPO (if they do!).
With each round, our stake and the founders' stake get diluted. If we start with 20% at seed or pre-seed stages, each funding round that comes after takes a slice — Series A, B, C, D. By the time IPO arrives, we might be left with under 5%.
Early-stage VCs must tread a very tightrope in aiming for the right entry price that enables enough ownership for a sizable exit. Every percentage point matters. Start with too little, and even a great exit won’t drive returns. However, founders also need enough equity to stay motivated in the long haul.
Finding that sweet spot between valuation and dilution starts at the entry price.
The headline number can be a trap
The startup world loves big, flashy valuations, but scaling too high, too fast often creates a fragile foundation—making long-term stability a challenge.
When companies raise at unsustainable valuations, they face two risks:
Growth trap: Future rounds require maintaining or exceeding aggressive growth metrics
Down round risk: Missing high growth targets can force raising capital at discounted valuations, damaging both morale and market perception
As valuation multiples become too high, the exit MOIC for later-stage investors starts getting capped.
Companies showing a more steady valuation growth tend to have more sustainable trajectories and better long-term outcomes. This pattern allows for healthy up-rounds while maintaining realistic growth expectations.
Who you raise from matters more than the valuation
We frequently encounter companies struggling to choose between a higher-priced round led by angel investors and a more moderately priced round led by institutional investors. Our advice remains the same - price isn’t everything.
Institutional investors bring more than just capital:
> Deep reserves for follow-on rounds (and mitigated future financing risk)
> Strategic guidance through market cycles
> Network access for future fundraising
> Active governance and long-term support
In tough markets, experienced backers can be the difference between survival and shutdown.
The Good Capital approach
At Good Capital, we’re forced to view pricing discipline as fundamental to our strategy.
We only make 6-7 investments annually. That's it. This leaves little scope to view exit projections through rose-tinted glasses; every bet has to reasonably be a fund returner.
Each investment gets our full attention. Fair price, strong ownership, and an earnest partnership. Our focus isn't on getting the lowest possible price, but rather on establishing a fair entry point that sets up both the company and our partnership for long-term success.
Quotable
"Price is what you pay. Value is what you get." – Warren Buffett
