We had the chance to catch up with entrepreneur and investor Kevin Rose during TechCrunch Disrupt, asking him about a multitude of startup zeitgeist topics, including the Y Combinator versus Google Ventures kerfuffle and what today’s high seed stage valuations mean for entrepreneurs. Rose held that high valuations sometimes turns off potential investors, and then brought up how he had passed on investing in Pinterest at a $5 million valuation, as an example.
Paul Graham‘s warning about Google Ventures undercutting existing valuation caps for seed rounds sent ripples throughout the tech and tech media gossip circles last week, but Rose held that it wasn’t common practice for Google Ventures to lowball startups.
“We have a $200 million yearly fund, it really doesn’t move the needle one way or another if a company is an $8 million or a $10 million cap or a $12 million cap,” he said. “But for me personally, I’m not going to invest in something that is over valued.” Rose brought up the case of BufferBox, where Google Ventures eventually accepted that startup’s valuation cap. (Rose referred to Bufferbox and Clever as some of the best and brightest prospects in the current YC class).
Rose did however warn against the perils of overvaluations, “When you drive valuations up you’re getting rid of a lot of good investors.” He said that Pinterest CEO Ben Silbermann showed him the platform about three or four years ago, offering him an angel investment opportunity at a $5 million valuation. “At the time I thought, wow, that’s really high,” Rose said. He called Pinterest “the one that will forever have got away” and confirmed that the startup had seen “really decent traction” at that point.
In hindsight, a basic $25k investment in Pinterest at $5 million valuation would mean $7.5 million in value at its current $1.5 billion valuation, a $50k investment would be now worth about $15 million.
“You go in there now and you see some of these companies that don’t have a fraction of the traction that Pinterest had at that time with valuations at three times as much,” Rose said, “It’s hard to figure out where we are in the bubble lifecycle and when is that going to correct itself.”
Or if some of those of “overvalued” companies are actually budding Pinterests.