Paul Graham

3 months ago

Something I have to explain to founders over and over (and which must therefore be counterintuitive): You don't have to convince investors that you're guaranteed to be huge, just that it's a sufficiently good bet.

If huge = a 10b market cap, and you're raising at a valuation of 10m, then the implied probability of succeeding, ignoring interest and dilution, is .1%. Suppose interest and dilution divide their investment by 10. You're still only claiming you have a 1% chance of succeeding.

That's all a good startup investment is in the first year or so: a company with a small but nonzero chance of becoming really huge. It's very rare to be able to claim more than that. And most who do are probably mistaken.

@FritzTheDev Then once you've honestly convinced yourself that the company is a sufficiently good bet, you merely explain your own reasoning to investors. If it's correct, the smart ones should see that.

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