Valuations Need a Correction

The way we talk about private valuations doesn't make sense. They don't mean what we think they mean. Observed private valuations exceed the true value of the average startup. They bake in a severe selection bias, since better companies are more likely to fundraise. As a result, we don't have an index of private valuations that accurately reflects the broader ecosystem. We only see a narrow slice of companies (those who fundraise) at a narrow slice of time (when they fundraise). These misleading metrics dominate startup headlines and public conversation. They lead us astray in our efforts to understand the state of the venture market, and anyone using these numbers as a benchmark pays a price for it: founders pricing rounds based on peers' valuations, investors citing "comps," the LP marking their book. Worse, this misconception can mask deep structural problems. When only winners transact, prices can rise even as the market beneath them deteriorates. Valuations need a correction.…