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It's not inconsistent with how pre-revenue startups are valued. If you have a startup that's expected to make $100M over the next 10 years and you sell it for $
by Alex3917 10y ago
It's not inconsistent with how pre-revenue startups are valued. If you have a startup that's expected to make $100M over the next 10 years and you sell it for $80M, then if your expectations were correct you've given up $20M. This is true even if the startup has earned $0 to date.
- bwilliams18 10y agoDon't forget about the time-value of money. If in 10 years the company is worth 100,000,000 it's only worth 67,000,000 today (assuming 4% interest and monthly compounding)
- sjg007 10y agoSeems like a bad idea to spend 80 to earn 20.
- hammock 10y agoSpend 80 to earn 100, man
- stagbeetle 10y agoNet 20.
- whack 10y agoYou must really hate investing in stocks/bonds/real-estate then.
- jnordwick 10y agoI hear ya. 25% returns aren't really worth it. I'll do you a favor and take all of them off your hands for you though.
- bbcbasic 10y agoThe startup will probably 'make' (profit I assume?) < 0 over 10 years as it will all be reinvested. But it will have a future value based on the potential future future future cash flows.
- notahacker 10y agoThis of course assumed that the expected earnings of the startup as an independent company run by you and your team are the same as the expected earnings of the startup assimilated into the acquirer's organisation (which might have access to new markets, new products to sell to your markets, better economies of scale. Or indeed might have a wildly inflated expectation of how much better they can monetise your service which they end up "sunsetting" four years later) Sometimes you can have a startup you're [i]not[/i] obviously poised to make significantly money with which poses a threat to a major player's significant revenue stream, or has IP or eyeballs they value. This seems to be the case for a surprisingly high proportion of tech acquisitions.