6 ms·

Interesting viewpoint Elad. A few points/considerations: Building equity valuable companies is way tougher and much riskier. Your examples of Google, Faceboo

by asanwal 16y ago

Interesting viewpoint Elad. A few points/considerations: Building equity valuable companies is way tougher and much riskier. Your examples of Google, Facebook, Twitter are all rare. And for every Goog, Twitter, FB, there are many carcasses of others who've not made it. For entrepreneurs balancing risk-reward, trying to build a company that is solely equity valuable is tough. Also, I don't think the equation is quite so binary. Cash businesses, by virtue of the cash they generate, can expand and enter adjacent markets and these growth initiatives can increase the equity value of the company. Amazon comes to mind. Lastly, although these cash businesses are not as sexy, there is still equity value there. There is a whole ecosystem of mid-market private equity firms interested in these types of companies and buying their equity.

lsc 16y ago
for many cash businesses, the equity is much smaller than you would think. I run what is essentially a hosting company, right? I've gotten a few offers, and do you know how hosting companies are valued? approximately one year revenue plus the value of your hardware. And this is a growing company in a rapidly growing market (I double every 6-8 months) I mean, it's something, but not compared to what you expect from equity businesses, and not nearly enough to cause a rational agent to sell at the margins we see, I mean, unless you were just sick of doing it.
eladgil 16y ago
Good points. However, think of all the talent buys or technology buys or "strategic buys" that companies make. E.g. Aardvark was acquired by Google for $50 million and I doubt they had any revenue. For early stage technology companies, most of the value is often in the equity. So you don't need to be a huge company to have most of the value in the equity.

6 ms·

Interesting viewpoint Elad. A few points/considerations: Building equity valuable companies is way tougher and much riskier. Your examples of Google, Faceboo

by asanwal 16y ago

lsc 16y ago
for many cash businesses, the equity is much smaller than you would think. I run what is essentially a hosting company, right? I've gotten a few offers, and do you know how hosting companies are valued? approximately one year revenue plus the value of your hardware. And this is a growing company in a rapidly growing market (I double every 6-8 months) I mean, it's something, but not compared to what you expect from equity businesses, and not nearly enough to cause a rational agent to sell at the margins we see, I mean, unless you were just sick of doing it.
eladgil 16y ago
Good points. However, think of all the talent buys or technology buys or "strategic buys" that companies make. E.g. Aardvark was acquired by Google for $50 million and I doubt they had any revenue. For early stage technology companies, most of the value is often in the equity. So you don't need to be a huge company to have most of the value in the equity.