Great Investment vs Great Companies.

I was reading The Information’s latest newsletter and caught this paragraph:

For now, few investors seem worried about losing money. Just over the past few weeks, Anthropic closed a financing at over a $60 billion valuation and OpenAI has been in talks to raise at a $300 billion valuation including the investment. 

While both are generating billions of dollars in revenue, investors have been choking over the potential valuations of some very new startups, which have no revenue or even a public product. For instance, Thinking Machines Lab, founded by former OpenAI Chief Technology Officer Mira Murati, is in talks with potential investors to raise roughly $1 billion, and it’s aiming to raise at a $9 billion valuation, according to Business Insider. It hasn’t generated any revenue.

That report followed a similar jaw-dropper, that former OpenAI co-founder Ilya Sutskever’s Safe Superintelligence Inc. was in talks to raise at a $30 billion valuation. Even in the zero-interest-rate funding boom, startups awarded such prices had to show at least hundreds of millions of dollars in revenue—and at least a product!

The numbers are staggering.

These developments underscore an important point: a great company isn’t automatically a great investment. You might back a future-defining business, but if you overpay, the returns can be compromised. It’s easy to argue that AI will probably be a generational defining technological dislocation, but it’s unclear to me that to what degree that “this time it is different” and ”no price is too high”.

As an investor, I believe in backing transformative ideas–but not at any price. It’s crucial to balance visionary bets with the reality of valuation. After all, the true art of investing lies in ensuring that the price you pay leaves enough room for substantial upside, and you should be rewarded for the risks you are underwriting.