In the same tone, there's a stock XYZ at $1. I think it will go to $10 in the next year, so instead of buying in at $1, I buy at $8? Wow. On Wall street, this is called "dumb money".
This is also called the "efficient market hypothesis", and is a cornerstone of basic equity valuation. The idea is that if you have information that a company's stock is sure to rise in the future, it is rational for you to pay any amount up to the point at which you believe it will be valued in the future to acquire it now. And so the stock price will instantly reflect all public information about the future prospects of the stock.
You may call it "dumb money", but if so, then all money is dumb.
Grandparent mentions "greater fool theory", which is perhaps a clearer counterpoint to your (quite correct) point.
It's also worth saying that upside risk is typically coupled with downside risk (which is something you're hinting at) -- the wider market has the probability of failure built into its current pricing. So, somewhat perversely, even if you don't think it'll have a billion dollar valuation with probability exceeding that of the market, it can become a better investment simply by increasing the probability of > $0 outcomes (by reducing that downside risk). Demonstrating that with a pivot seems like actually good evidence.
I wouldn't make the same investment, but there are a couple angles to discuss here.
there is a lot of uncertainty in valuing a startup. Conditional on this uncertainty, if I think it is worth 10, then absolutely, I should buy every share I can at 10 or below. The question is, is my valuation method correct. On average, since it is known that VC underperform the market, especially, the larger funds - the answer is probably, not quite :)
