A prior investment, DealerSocket, had such incredibly efficient sales that it set an unrealistic internal benchmark. When HubSpot pitched Meritech, their sales efficiency metrics seemed 'terrible' in comparison, causing the firm to pass on what became a massive success. An outlier success can create a flawed model for future evaluations.

Unlike Private Equity or public markets, venture is maximally forgiving of high entry valuations. The potential for exponential growth (high variance) means a breakout success can still generate massive returns, even if the initial price was wrong, explaining the industry's tolerance for seemingly irrational valuations.

An investor's best career P&L winners are not immediate yeses. They often involve an initial pass by either the investor or the company. This shows that timing and building relationships over multiple rounds can be more crucial than a single early-stage decision, as a 'missed round' isn't a 'missed company'.

Collaborative Fund's Craig Shapiro passed on Uber's seed round ($4M valuation) because he perceived it as a 'black car' service for the rich. This highlights the common investor mistake of underestimating a market by failing to see how a premium service can eventually democratize an entire industry.

An investor passed on a fund that paid 30-40x revenue for startups, believing quality alone justifies price. Three years later, that fund and its predecessors are underwater. This illustrates that even for great companies, undisciplined entry valuations and the assumption of multiple expansion can lead to poor returns.

Palantir commands a massive valuation premium because it is both well-run and unique, with no clear alternatives. This lack of competition dramatically reduces churn risk and increases the durability of future cash flows, justifying a higher multiple than other software companies that operate in more crowded markets.

Valuations don't jump dramatically; they 'sneak up on you.' An investor might balk at a $45M cap when they expected $40M. But the fear of missing a potential unicorn is stronger than the desire for a slightly better price, causing a gradual, batch-over-batch inflation of valuation norms.

This provides a simple but powerful framework for venture investing. For companies in markets with demonstrably huge TAMs (e.g., AI coding), valuation is secondary to backing the winner. For markets with a more uncertain or constrained TAM (e.g., vertical SaaS), traditional valuation discipline and entry price matter significantly.

Palantir is both a high-performing software company and a dangerously overvalued "meme stock." It trades at multiples (125x sales) completely disconnected from its underlying financials. This dual identity makes it a risky short, as its valuation is driven by retail investor sentiment rather than traditional metrics.