Why do people overpay?
Understand that and you can be a better seller.
The publishing industry apparently mints new novelists each year and pays them say $30k advances for novels. But each year, says my friend the novelist, a few new writers with no history get $1mm deals.
This happens when the work is pretty good and the agent shops it into a bidding war.
The winner’s curse for the house that takes this new star-in-the-making is they never make the 1mm back on that first book.
So why do it?
a) defend reputation as the house that publishes the best names eg Farrar Strauss in literary novels, or
b) own the author early and expect returns over multiple titles
c) maybe “never” above is an exaggeration and usually is more accurate. Eg the portfolio of hot new authors does return in aggregate but not in most individual cases.
So which is it?
Doesn’t matter.
If you are a seller, the lesson is you want buyers that buy for these kinds of reasons.
Now I think about venture most of the time and in venture this is the seed or series A.
A and C seem real dynamics in venture. Weirdly I have never seen B — backing a guy again and again until he hits it.