{"id":378,"date":"2012-12-23T01:30:06","date_gmt":"2012-12-23T09:30:06","guid":{"rendered":"http:\/\/www.danshapiro.com\/blog\/?p=378"},"modified":"2012-12-23T12:39:29","modified_gmt":"2012-12-23T20:39:29","slug":"paul-graham-may-be-right-but-chris-zacharias-is-righter","status":"publish","type":"post","link":"https:\/\/www.danshapiro.com\/blog\/2012\/12\/paul-graham-may-be-right-but-chris-zacharias-is-righter\/","title":{"rendered":"Paul Graham may be right, but Chris Zacharias is righter"},"content":{"rendered":"

Chris Zacharias, founder of imgix.com<\/a> (and Y Combinator grad), recently wrote an interesting blog post<\/a>\u00a0that postulated a different funding strategy. \u00a0Instead of pricing his round at market, he priced it significantly below. \u00a0He claims this gave him access to a group of high-quality “value-conscious” angel investors who would not invest in Y Combinator companies at the higher valuations that were normal for the market.<\/p>\n

Paul Graham, founder of YC, challenged Chris<\/a> on two points. \u00a0First, he claimed that it wasn’t rational for angel investors to be price-sensitive. \u00a0Second, he said that Chris’s evidence was just an anecdote – he may have found good investors at a lower price point, but that didn’t mean that less price-sensitive investors weren’t equally valuable.<\/p>\n

I think Paul may be correct, but he misses Chris’s genius. \u00a0I believe what Chris is doing is an example of one of my favorite startup strategies, the contrarian segmentation<\/a>.<\/p>\n

Imagine a set of investors who have decided to only invest in companies that will accept the investment in Dutch guilders. This strange circumstance is found randomly throughout a significant minority of the investing populace, and isn’t well correlated with any other investor traits.<\/p>\n

Most companies say, “This is silly! There are meaningful downsides to taking investment in guilders. I will only consider investors who take American dollars.”<\/p>\n

But one canny startup decides to take the contrarian approach: they actively look for guilder-investing angels. They pay some additional cost for doing so (in guilder-conversion fees and so on). However, there is no competition in this investment pool. They complete their investment round far more quickly than their dollar-seeking bretheren, and get the very best of the guilder-investing angels in their round.<\/p>\n

Paul may be right that “there is no value-investing in startups” – that is, Chris’s investors are making a mistake. \u00a0He may be right that non-price-conscious investors are equally or more valuable than price conscious ones. \u00a0But even so, Chris is doing something very smart: he’s fishing in a smaller pool. \u00a0There may be fewer fish, but he’s got them all to himself.<\/p>\n","protected":false},"excerpt":{"rendered":"

Chris Zacharias, founder of imgix.com (and Y Combinator grad), recently wrote an interesting blog post\u00a0that postulated a different funding strategy. \u00a0Instead of pricing his round at market, he priced it significantly below.…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[],"class_list":["post-378","post","type-post","status-publish","format-standard","hentry","category-startups"],"_links":{"self":[{"href":"https:\/\/www.danshapiro.com\/blog\/wp-json\/wp\/v2\/posts\/378","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.danshapiro.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.danshapiro.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.danshapiro.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.danshapiro.com\/blog\/wp-json\/wp\/v2\/comments?post=378"}],"version-history":[{"count":1,"href":"https:\/\/www.danshapiro.com\/blog\/wp-json\/wp\/v2\/posts\/378\/revisions"}],"predecessor-version":[{"id":379,"href":"https:\/\/www.danshapiro.com\/blog\/wp-json\/wp\/v2\/posts\/378\/revisions\/379"}],"wp:attachment":[{"href":"https:\/\/www.danshapiro.com\/blog\/wp-json\/wp\/v2\/media?parent=378"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.danshapiro.com\/blog\/wp-json\/wp\/v2\/categories?post=378"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.danshapiro.com\/blog\/wp-json\/wp\/v2\/tags?post=378"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}