17 ms·

Valuations are fake, so who cares? I don't mean to be flip, but valuations are only important to other VCs. No surprise they created their own bubble. Valuation

Valuations are fake, so who cares? I don't mean to be flip, but valuations are only important to other VCs. No surprise they created their own bubble. Valuations for the Uber-of-this or the AirBnB-for-that have been absurd. I'm not saying there aren't business opportunities there, but sometimes those opportunities are in the tens of millions of dollars, not billions, and hey, tens of millions is fantastic by the way. Edit: I'd like to say I think this is a good thing. I've seen a couple instances where growth was on the back of VCs and didn't have a foothold in reality, and friends ended up losing their businesses. I'm a fan of bootstrapping but I totally get where VC money can help - a lot, in fact. That said, keeping an eye on revenues and reality instead of funding slide decks and pie-in-the-sky "potential" revenues can only be good.

deleted 11y ago
[deleted]
JonFish85 11y ago
Valuations are fake from one perspective: that they don't reflect anything more than a handful of investors' decisions to pay for a slice of the company. They have very real meaning when it comes to things like employee options and ability to raise money to pay for employees. If a year ago a company raised $10m at a $50m valuation, but now they want another $50m to scale, they'll have to give up a much bigger percentage of stock to do that, which can essentially wipe out any employee stock (founders likely have a different class of stock that isn't as affected). And along the same lines, maybe the company can't raise as much cash as they want/need. In this case, they have to cut back on what they pay employees. In these cases, the money starts to tighten up, and people don't see the reason to stick around SV paying $4k/mo in rent if they're only being paid $8k (before taxes), so they start to look for other places to go. This can lead to a spiral where an otherwise good company can't retain or attract talent, and so the cycle continues (don't hit growth targets, can't raise money at good rates, etc)
AndrewKemendo 11y ago
>Valuations are fake, so who cares? Because they actually aren't fake. I mean I get what you are saying, but the reality is that real money changes hands based on those valuations, so they are priced the same way as any other security: Someone says they will pay a certain price per share. I think the issue is that investors setting the prices as market makers don't have a super strong track record of doing valuations with high accuracy.
- fragsworth 11y ago
  No, a valuation is pretty much meaningless without the context of the terms for the deal. One of the most important clauses is the liquidation preference. There are many others.
imh 11y ago
Because of things like liquidity preference, a valuation going down can wipe out the employee stock.
ProAm 11y ago
> Valuations are fake, so who cares? I don't mean to be flip, but valuations are only important to other VCs. When a company decides they want to go public it becomes very important.

deleted 11y ago

[deleted]

JonFish85 11y ago

Valuations are fake from one perspective: that they don't reflect anything more than a handful of investors' decisions to pay for a slice of the company. They have very real meaning when it comes to things like employee options and ability to raise money to pay for employees. If a year ago a company raised $10m at a $50m valuation, but now they want another $50m to scale, they'll have to give up a much bigger percentage of stock to do that, which can essentially wipe out any employee stock (founders likely have a different class of stock that isn't as affected). And along the same lines, maybe the company can't raise as much cash as they want/need. In this case, they have to cut back on what they pay employees. In these cases, the money starts to tighten up, and people don't see the reason to stick around SV paying $4k/mo in rent if they're only being paid $8k (before taxes), so they start to look for other places to go. This can lead to a spiral where an otherwise good company can't retain or attract talent, and so the cycle continues (don't hit growth targets, can't raise money at good rates, etc)

AndrewKemendo 11y ago

>Valuations are fake, so who cares? Because they actually aren't fake. I mean I get what you are saying, but the reality is that real money changes hands based on those valuations, so they are priced the same way as any other security: Someone says they will pay a certain price per share. I think the issue is that investors setting the prices as market makers don't have a super strong track record of doing valuations with high accuracy.

fragsworth 11y ago
No, a valuation is pretty much meaningless without the context of the terms for the deal. One of the most important clauses is the liquidation preference. There are many others.

imh 11y ago

Because of things like liquidity preference, a valuation going down can wipe out the employee stock.

ProAm 11y ago

> Valuations are fake, so who cares? I don't mean to be flip, but valuations are only important to other VCs. When a company decides they want to go public it becomes very important.