Investing at a valuation of $1 million is a strictly worse investment than investing at $500k, from the perspective of the investor, but that doesn't mean $500k is on the table.
Here's the metagame: investing traditionally sucks for founders. Founders at the top tier of companies now have market power. A betting man might predict it is going to start sucking less for them.
Of course, somebody has to explain the game has changed to investors. Preferably, a respected someone with no immediate need of their money, whose favor investors rely on desperately for deal flow. If he is a really good communicator, he might even get them to agree that this is in their interests, since successful startups are cheap at any price and unsuccessful startups are overpriced no matter what the terms were. If he can credibly claim to represent mostly successful startups, well then, no harm to investors.
Hm, doesn't that mean that the investors would be better off to go seek for interesting startups in the parts of the world where the investors are so rare that the founders don't have that kind of market power? And would accept nearly any valuation just to get funding?
Or it's still just easier to sit and wait for startups to fall in their mouths, accepting whatever terms they might ask?
Assuming all other things being equal, yes. However all things aren't equal and many people live in a particular place because they like the lifestyle, or their family lives there or their kids have great opportunities etc...
You're right though. It's the corollary of startups moving to SF because that's where the investors are.
Here's the metagame: investing traditionally sucks for founders. Founders at the top tier of companies now have market power. A betting man might predict it is going to start sucking less for them.
Of course, somebody has to explain the game has changed to investors. Preferably, a respected someone with no immediate need of their money, whose favor investors rely on desperately for deal flow. If he is a really good communicator, he might even get them to agree that this is in their interests, since successful startups are cheap at any price and unsuccessful startups are overpriced no matter what the terms were. If he can credibly claim to represent mostly successful startups, well then, no harm to investors.
whistles