4 ms·

Probably I would look like a noob in the context of SV startup world, but can someone tell me how these insane evaluations are calculated? Or there is a deal o

• fullshark 10y ago
  Probably the user base and perhaps some patents they have.
• econner 10y ago
  User growth, number of page views, engagement / retention + trajectory, evaluated against similar businesses. People said the same thing of snapchat, facebook, and twitter early on.
  • trymas 10y ago
    afaik, only facebook is making money, twitter is still an "eternal startup" with still insane market cap (even though that they are public). Snapchat may have some cool AR stuff in their R&D department, but they still "have not found themselves".
  • overcast 10y ago
    Only one of those is making any money.
• summarite 10y ago
  Snapchat with higher valuation than Deutsche Bank. Tells you a lot about two different industries at once - but if i had to invest in one i know I'd always choose the latter over the former.
  • nerfhammer 10y ago
    Ah, the stable world of high finance. DB is running close to defaulting on its debts.
    • lazyjones 10y ago
      > DB is running close to defaulting on its debts. It's too big to fail though and the tax payers will save it.
      • nerfhammer 10y ago
        So, this is actually a good example of the stability in high finance? If you think the market is pricing DB incorrectly, and also the market is pricing Snapchat incorrectly... are these really counterexamples of each other then?
      • nugget 10y ago
        Too big to fail doesn't necessarily mean that the investors (equity and debt holders) have anything left at the end.
  • pavlov 10y ago
    That's what most people would have said about investing in Facebook vs. Lehman Brothers in 2007...
    • dplgk 10y ago
      You retrospectively picked the winner (Facebook) of a bunch of companies in the same race. How would you have picked Facebook in 2007? e.g. MySpace vs. Lehman Brothers Bebo vs. Lehman Brothers Friendster vs. Lehman Brothers etc
• mi100hael 10y ago
  There are theoretical paths to expand revenue. Any site like Giphy that can position themselves as the leader in a segment of the web like gif searching/aggregation can claim ad revenue based on current/potential user volume. In addition, Giphy could pursue things like licensing/marketing deals where companies pay to create/distribute gifs for marketing purposes. IIRC they were in talks with the NFL or some other pro sports league about something this. So companies put together a pitch with current revenue streams, how to grow those, and R&D for new revenue streams, and how to do so while keeping expenses low. Those numbers are usually multiplied by some factor to determine a ballpark. Exit strategies are also considered. The goal is usually either to get acquired or go public. Marketability of a company once properly positioned, current market climate, and past exits of similar companies are also often considered. For example, Google bought YouTube for $1.65B less than two years after launch while it was still pretty rough around the edges. Gifs are already often used as lightweight, embedded video alternatives on Reddit and blogs, so it's not inconceivable that Giphy tries to make a case for being worth a similar amount if they can position themselves as a new de facto media platform for light clips like YouTube is for full videos.
  • valarauca1 10y ago
    Any site like Giphy that can position themselves as the leader in a segment of the web like gif searching/aggregation Hold up. Are you seriously suggesting Giphy is going to be able to compete with Google Search? Because ultimately that is who their chief competitor will become. You are suggest they will carve out an existence in Google Search space right? Like where Google receives >95% of it's revenue?
• andrewla 10y ago
  Just to answer the most direct version of your question, the valuation is just based on how much of an equity stake was purchased, and for how much money. So they raised $72MM in exchange for a presumed 12% equity stake in the company, meaning that they company was implicitly valued at $600MM. As to how the $72MM (and the 12%) is calculated, that's a negotiation between parties, and there is no universally accepted "formula" for calculating this. Private equity and VC companies take risks based on their evaluation of the company prospects. If there were a magic formula, then investing in companies (and finding funding) would not be at all interesting or competitive. Aside from any any numbers about user adoption, growth rate, or potential advertising angles, the other significant thing that an investor may be looking for is the chances of a downstream acquisition by a player looking to expand its reach. Giphy would be a natural target for large search companies, or social media companies (who might be interested in a closer relationship with an effective content source), or various chat companies (like Slack or Facebook or even Apple). Whether an acquiring company will be willing to pay enough money for a company like this to be worth the investment, rather than building similar functionality in-house, is part of the judgment of the investors, which they can base on qualitative evaluations of the technical or sales abilities of the employees or the difficulty of the problem space.
• no_wave 10y ago
  I was always skeptical but the thing that made me concretely understand why these valuations aren't real is when I learned about liquidation preferences. At least a 2x liquidation preference is standard for most VC investments (Y Combinator is an exception to this, I think). In simplified form, this means that regardless of what happens, the investors will get 2x of what they invested before anyone else in the company sees a cent. This means that even if giphy fails, the investors will always get a 2x return on their investment unless the company falls so far that it's no longer worth $24 million when it's sold off somehow. EDIT: After being informed in responses to this, it appears that 1x preferences are now the standard. I apologize for any misinformation.
  • ep103 10y ago
    wow, okay. If that's standard, that really puts things in a different light
    • marrone12 10y ago
      It is standard. It's also why being in a startup is rarely the windfall it seems, even if there is an exit. By the time all the VCs get their 2x-5x cashout, there's barely money for the actual employees.
  • flylib 10y ago
    1x is standard, 2x isn't, I doubt Giphy did more then 1x, The majority of snapchat's financing rounds are actually common stock with only the early investors getting preferred stock and 1x liquidation preference
    • no_wave 10y ago
      You're correct, and I apologize for the misinformation. I'll add an addendum to my post reflecting this.