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I checked my notes and 20-30x seems was the target next-round multiple for the A's and B's I talked to. I get that earlier companies get a higher multiple based

I checked my notes and 20-30x seems was the target next-round multiple for the A's and B's I talked to. I get that earlier companies get a higher multiple based on growth, but I don't know if 2-3x the multiple for top public co's is reasonable or not.

Retric 3y ago
It’s not worth investing in private companies unless their long term growth outlook is significantly outperforming public ones. PEG on the other hand is by necessity a backward looking metric. That self selection means they really should have a higher multiple even if you judge them using the same metrics. IE if you have a public company growing by 20% per year and a private one growing by 20% per year you should only invest in the private one of it’s at a significant discount or it’s growth will likely continue for significantly longer than the public one.
- ComputerGuru 3y ago
  You forgot the one exception: or you expect the private company to go public after your investment.
  - Retric 3y ago
    That reduces but doesn’t eliminate this preference. A private company going public in 1 months is still one month where you have less liquidity than investing in a public company for that month. Everything else being equal liquidity makes public companies more attractive.
    - ComputerGuru 3y ago
      Well, most people would be betting that by investing pre-IPO they can cash out upon or shortly after IPO with nice gains. Of course none of that is guaranteed.
      - Retric 3y ago
        You still need to find someone to take the other side of that investment. Taking a company public is generally profitable because of people’s liquidity preference. Companies will sell shares to an investment bank directly before an IPO as both a form of payment and a hedge. It’s a very nuanced transaction that might otherwise seem dumb on the surface.
        ComputerGuru 3y ago
        Thanks for the additional info. I feel like I need to read up on this some more to make more sense of all the conflicting bits I have accumulated.

Retric 3y ago

It’s not worth investing in private companies unless their long term growth outlook is significantly outperforming public ones. PEG on the other hand is by necessity a backward looking metric. That self selection means they really should have a higher multiple even if you judge them using the same metrics. IE if you have a public company growing by 20% per year and a private one growing by 20% per year you should only invest in the private one of it’s at a significant discount or it’s growth will likely continue for significantly longer than the public one.

ComputerGuru 3y ago
You forgot the one exception: or you expect the private company to go public after your investment.
- Retric 3y ago
  That reduces but doesn’t eliminate this preference. A private company going public in 1 months is still one month where you have less liquidity than investing in a public company for that month. Everything else being equal liquidity makes public companies more attractive.
  - ComputerGuru 3y ago
    Well, most people would be betting that by investing pre-IPO they can cash out upon or shortly after IPO with nice gains. Of course none of that is guaranteed.
    - Retric 3y ago
      You still need to find someone to take the other side of that investment. Taking a company public is generally profitable because of people’s liquidity preference. Companies will sell shares to an investment bank directly before an IPO as both a form of payment and a hedge. It’s a very nuanced transaction that might otherwise seem dumb on the surface.
      - ComputerGuru 3y ago
        Thanks for the additional info. I feel like I need to read up on this some more to make more sense of all the conflicting bits I have accumulated.