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Most of the venture funds are actually investing the money of pension funds and university endowments, not "rich people". "Rich people" - meaning recent tech mu

Most of the venture funds are actually investing the money of pension funds and university endowments, not "rich people". "Rich people" - meaning recent tech multi-millionaires are driving an increase in angel investing, but they are not who's driving these 50x revenue multiples for later stage companies. If were to give anyone credit for these multiples, it would be Facebook. They've definitely inflated the value of companies that went out before them (Zynga, Linkedin, Groupon, Pandora) and have helped push up valuations of Dropbox and others. When $100bn is your ceiling for a "private" company value, psychologically it allows for much more aggressive private valuations. And it's likely that Facebook private valuation is an extreme outlier, not a "new normal", which will lead to a boatload of companies that have their highest valuation ever before they go public.

ChuckMcM 14y ago
I was going to comment about the feedback loop of unionized public sector workers underpaying for retirement benefits and then realized that thought was too scary to think about. :-) Well Groupon had a pretty obscene private valuation as well. To your point though, aren't pension funds and endowments only taking a small portion, and putting it there for the same reason? Higher potential returns at increased risk? And those return demands are being driven by future payout expectations contrasted with existing returns? Whether you're a multi-millionare or a multi-billion dollar pension fun, getting 1.6% on your money isn't going to cut it.
grey-area 14y ago
When I heard about the instagram acquisition I did wonder if Facebook partly made that purchase with that timing and an insane valuation in order to ramp the value of their own IPO shortly afterward. This is not sustainable, and it's going to make it very difficult for startups to get funding in a few years when it all goes sour. But the best insurance, as ever, is to try to build a great company, not try to build something that some VC will want to buy with borrowed money.

ChuckMcM 14y ago

I was going to comment about the feedback loop of unionized public sector workers underpaying for retirement benefits and then realized that thought was too scary to think about. :-) Well Groupon had a pretty obscene private valuation as well. To your point though, aren't pension funds and endowments only taking a small portion, and putting it there for the same reason? Higher potential returns at increased risk? And those return demands are being driven by future payout expectations contrasted with existing returns? Whether you're a multi-millionare or a multi-billion dollar pension fun, getting 1.6% on your money isn't going to cut it.

grey-area 14y ago

When I heard about the instagram acquisition I did wonder if Facebook partly made that purchase with that timing and an insane valuation in order to ramp the value of their own IPO shortly afterward. This is not sustainable, and it's going to make it very difficult for startups to get funding in a few years when it all goes sour. But the best insurance, as ever, is to try to build a great company, not try to build something that some VC will want to buy with borrowed money.