I’ve always been fascinated by how markets value startups and mature businesses so differently. One phenomenon that stands out is what I like to call the “premium of the unknown.”
Here’s what I mean: When something is unknown—like a new startup or a groundbreaking product—people tend to speculate, often assigning value based on a wildly optimistic narrative or promise. But when something is known—like a company with years of performance data—people value it based on past outcomes and comparisons with similar businesses.
This reminds me of two companies:
1️⃣ An edtech startup with basic hardware revenue but a vision to “disrupt the future of education.” Valued at billions.
2️⃣ A mature FMCG company with consistent profits, solid market share, and a reliable dividend. Struggles to command high valuation multiples.
Why does this happen?
As Aswath Damodaran says, valuation is “numbers + story.” But when the numbers are missing, the story takes over. A good story can make people dream big—investors envision exponential growth, market dominance, and untapped potential. This is why startups with little more than a slide deck can raise millions, while established companies with predictable returns often feel undervalued.
🚀 The Unknown Fuels Speculation
Think about companies like Tesla in its early days. The story wasn’t just about selling cars—it was about revolutionizing transportation, saving the planet, and creating a new energy ecosystem. Investors weren’t buying cars; they were buying a dream.
But when a company is established, like Procter & Gamble, the story becomes less exciting. People focus on cash flow, past performance, and future predictability. It’s not that the company is less valuable—it’s just that the thrill of the unknown is gone.
💡 The Role of Time
Over time, reality sets in. The unknown becomes known, and valuations adjust accordingly. Some companies justify their early hype (e.g., Amazon’s journey from a loss-making bookstore to a trillion-dollar juggernaut), while others stumble as their stories fail to match performance.
But here’s the twist: most people don’t wait to see how the story plays out. They get excited by super funding rounds and assume many of these companies as a succeess, which is far from true.
🎯 Lessons for Entrepreneurs
Your story matters—a lot. But make sure your numbers eventually back it up. A great narrative may raise capital, but solid execution keeps you in the game. In long term every business finds it’s real value. Building real business is key.
At Indus Net Technologies (INT.) we have chosen our path – of transparency and value creation. We don’t (and don’t want to) control valuation.
What’s a company or example you’ve seen that benefited (or suffered) from this dynamic? Let’s discuss in the comments.