David Hsu: evaluation

Transcript context

…And then closing off on just a little bit of the fundraising stuff, something notable that you did was when in 2021, when it was sort of peak Zerp, and everyone was raising hundreds and hundreds of millions of dollars, you intentionally raised less money at lower valuations as your title. And I think it's a testament to your just overall general philosophy and building retool that you're just very efficient and you do things from first principles. Any updates on like, would you still endorse that? You know, would you recommend that to everyone else? What are your feelings sort of two years on from that? Yeah. I think exactly you said is correct, where we raise less money at a lower valuation. And I think the funny thing about this is that when we first announced that, even, you know, internally and both externally, I think people were really surprised, actually, because I think Silicon Valley has been conditioned to think, well, raising a giant sum of money at a giant valuation is a really good thing. So like, you know, you should maximize both the numbers, basically. But actually maximizing both the numbers is actually really bad, actually, for the people that matter the most, you know, i.e. your employees or your team. And the reason for that is raising more money means more dilution. So if you look at, you know, a company like, let's say Uber, for example, if you join Uber at like, I don't know, like a $10 billion valuation, or let's say join for a huge route, which I think happened at a few billion dollars in valuation, you actually got diluted a ton when Uber fund raises. So if Uber raises, if Uber dilutes themselves by 10%, for example, let's say it raised $5.25 billion, for example, I think employees' stake goes down by 10% in terms of ownership. Same with, you know, previous investors, same with the founders, etc. And so, if you look at actually a lot of founders in sort of, you know, the operations statistics space, or, you know, those that fundraise, like, you know, 2013, 2017, a lot of the founders by IPO only have a few percentage points, actually, for a company. And if founders only have a few percentage points, you can imagine how, you know, how little employees have. And so, that I think is actually still really, you know, bad thing for employees overall. Secondly, sort of higher valuation, given the same company quality is always worse. So basically, what that means is, if you are fundraising as a company, you could commit a certain valuation in the market, you know, let's say it's, you know, x. For example, maybe if you're lucky, and you can raise two times x, for example. But if you choose two times x, your company itself is not fundamentally changed. It's just that, you know, for some reason, investors want to pay more for it. You know, maybe today you're an AI company, for example. And so, investors are really excited about AI and want to pay more for it. However, that might not be true in a year or two years time, actually. And if that's not true in two years time, then you're in big trouble, actually. And so, now, I think you see a lot of companies that are raising really high valuations about 2021. And now, they're like, man, we're at like 100x, or, you know, we raised 300x multiple, for example. And if we're at 300x, then, you know, maybe now we're at like 200x, man, we just can't raise money ever again. Like, you know, we have to grow like 50x to go raise money, reasonable valuation, I would say. And so, I think that is really challenging and really demotivating for the team. raise money ever again. Like, you know, we have to grow like 50x to go raise money, reasonable valuation, I would say. And so, I think that is really challenging and really demotivating for the team. And so, I think a lower valuation actually is much better. And so, for us, in retrospect, you know, to answer your question, two years later, we did not predict, you know, the crash, if you will. But given that, I think we've done extremely well, mostly because our valuation is not sky high. If our valuation were sky high, I think we'd have a lot more problems. We'd probably have recruiting problems, for example, and probably have a lot of internal morale problems, etc. A lot of people would be like, you know, why is the valuation this way? We might have cash flow problems because we might have to go raise money again, you know, etc. But we can't because the valuation is too high. So, I would urge, I think, founders today to, quote unquote, like, leave money on the table. Like, there are some things that are not really worth optimizing. I think you should optimize for the quality of the company that you build, not like the valuation, you raise that or the amount you raise, etc. So,…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.