Why Do Startup Valuations Keep Rising?

Shardul Shah says startup valuations keep rising because more capital is moving into private markets than there are giant outcomes to own. He comes back to supply and demand. He is a University of Chicago econ student, not an economist, and private markets are still small next to the capital in the world. He expects that flow to continue. Outcomes can get bigger, and he expects more of them, but the set stays finite. More capital chasing relatively few outcomes means prices go up. Prices are high, and he says they will get higher. In a crowded market, behavior that looks irrational can still be rational. The test he keeps is whether Index is partnering with the best entrepreneurs.

Being cute on price has been a sin of omission at Index. GitHub is one of the misses where trying to be clever on price kept the firm away from a better outcome. Being about 25% off on price does not matter. Being 2x off is a reason to ask what someone else believes that Index does not. The point is not winning or losing a price negotiation. Within about 25%, he says the firm should go for it.