4 ms·

> A $4B valuation with 'speculation / risk built in' means they really think it's worth $20-50B. I may be out of the loop, but that's not* how I learned to val

> A $4B valuation with 'speculation / risk built in' means they really think it's worth $20-50B. I may be out of the loop, but that's not* how I learned to valuate startups. On the contrary, the VC valuation I learned to calculate was usually a bit higher than expected market value.

jollybean 6y ago
Yes, the 'market value' would also include the risk profile. Crudely, if there's a 75% chance something goes bust, then the value is only 25% of what it would be if it was going to be 100% successful. For growth companies, the likelihood of failure tends to be lower, but this company is in many ways still at 'seed stage' dynamics with no established base, business plan, revenue, still in a closed beta etc. etc. and a high likelihood of failing.
- villasv 6y ago
  The rationale goes in the opposite direction. If investors led a funding round at a valuation of 4 Bn, that's already how much they think it's worth it and, in most cases, its market value is a bit less.
  - jollybean 6y ago
    Yes, obviously 'they think it's worth that' in present terms because that's why they are investing in it at that amount. They're not going to invest at some number largely different from 'what they believe it's worth'. But your statement misses my implication that the risk profile is 'out of sync' for this kind of investment, at this stage. Normally, when companies get into the 'multibillion dollar range' - they have established business operations and they can make crude, ballpark assessments with respect to outcomes. Companies with multi-billion dollar valuation tend not to fail - so the 'valuation' process would be a calculation of 'present value of cash flows' for the giant market the company is in, what the market will bear etc.. It's a giant guess, but an informed one. Clubhouse is at 'seed stage' in terms of operations - this means, that unlike regular B-round companies with $4B valuations - they're still a total crapshoot. Stripe, when it was at $4B had a growing business. Clubhouse has mostly just a lot of hype, no revenues, no business model, no celebrity backing, and I'm going to imagine not much of a daily-active user base. (Obviously AZ has access to internal metrics and we don't know what those are). So when you consider Stripe at $4B valuation has a 90% chance of surviving as a business, and Clubhouse at $4B probably a 33% chance of surviving as a business - that says a lot. It effectively means that before the failure risk adjustment, the belief is that Clubhouse would be substantially bigger business. At these giant valuations AZ is putting in quite a lot of money, they actually cannot afford to take risks that big, there's some weird dynamics going on with this. There's definitely a 'new game' being played with monster valuations that's a crazy poker hand with a lot of chips in the pile.
    - villasv 5y ago
      I understand your viewpoint, I'm just saying that's not how VCs take valuations. It's a 4 bn business, its chance of survival taken into account - which at this point, a16z thinks is pretty high, not <50%. This confidence is probably what rose it from its previous 1 bn valuation.

jollybean 6y ago

Yes, the 'market value' would also include the risk profile. Crudely, if there's a 75% chance something goes bust, then the value is only 25% of what it would be if it was going to be 100% successful. For growth companies, the likelihood of failure tends to be lower, but this company is in many ways still at 'seed stage' dynamics with no established base, business plan, revenue, still in a closed beta etc. etc. and a high likelihood of failing.

villasv 6y ago
The rationale goes in the opposite direction. If investors led a funding round at a valuation of 4 Bn, that's already how much they think it's worth it and, in most cases, its market value is a bit less.
- jollybean 6y ago
  Yes, obviously 'they think it's worth that' in present terms because that's why they are investing in it at that amount. They're not going to invest at some number largely different from 'what they believe it's worth'. But your statement misses my implication that the risk profile is 'out of sync' for this kind of investment, at this stage. Normally, when companies get into the 'multibillion dollar range' - they have established business operations and they can make crude, ballpark assessments with respect to outcomes. Companies with multi-billion dollar valuation tend not to fail - so the 'valuation' process would be a calculation of 'present value of cash flows' for the giant market the company is in, what the market will bear etc.. It's a giant guess, but an informed one. Clubhouse is at 'seed stage' in terms of operations - this means, that unlike regular B-round companies with $4B valuations - they're still a total crapshoot. Stripe, when it was at $4B had a growing business. Clubhouse has mostly just a lot of hype, no revenues, no business model, no celebrity backing, and I'm going to imagine not much of a daily-active user base. (Obviously AZ has access to internal metrics and we don't know what those are). So when you consider Stripe at $4B valuation has a 90% chance of surviving as a business, and Clubhouse at $4B probably a 33% chance of surviving as a business - that says a lot. It effectively means that before the failure risk adjustment, the belief is that Clubhouse would be substantially bigger business. At these giant valuations AZ is putting in quite a lot of money, they actually cannot afford to take risks that big, there's some weird dynamics going on with this. There's definitely a 'new game' being played with monster valuations that's a crazy poker hand with a lot of chips in the pile.
  - villasv 5y ago
    I understand your viewpoint, I'm just saying that's not how VCs take valuations. It's a 4 bn business, its chance of survival taken into account - which at this point, a16z thinks is pretty high, not <50%. This confidence is probably what rose it from its previous 1 bn valuation.