4 ms·

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

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 5y 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 5y 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.