5 ms·

It's funny that people here think he's making fun of snapchat, but the article is from 2009. He was making fun of facebook's $6.5b valuation (or maybe it was $1

by paul 13y ago

It's funny that people here think he's making fun of snapchat, but the article is from 2009. He was making fun of facebook's $6.5b valuation (or maybe it was $10b). The fact that he was completely wrong (fb is now over $100b) doesn't stop people here from thinking that there's wisdom in this nonsensical post.

wensing 13y ago
Is there any way to know with any degree of confidence whether something is a flash in the pan or a viable company? It isn't just about growth is it?
- paul 13y ago
  It helps to know the founders and internal metrics, which nobody here does. I honestly don't know if Snapchat is worth $3B or not, but I certainly wouldn't dismiss them.
outside1234 13y ago
its not nonsensical. there is truth in pointing out that a VC valuation does not equate to a true valuation - either in the upside or downside.
- csomar 13y ago
  Facebook generates $8bn of revenue per year. I guess those who valued Facebook at $6bn at that time were quite wise. You can't say anything about the current investors. Only the future will tell if it's a wise investment.
  - auctiontheory 13y ago
    Valuation is a very complex topic, but in "classical" finance, it has more to do with earnings than revenue.
  - mkramlich 13y ago
    > I guess those who valued Facebook at $6bn at that time were quite wise. strictly speaking: or fools that got lucky
  - coldtea 13y ago
    I could generate $8bn of revenue by selling $100 bills for $10. Profit now, that's another thing.
- kansface 13y ago
  What mysterious property is a "true valuation" and how does one measure it?
  - edhebert 13y ago
    By asking a Scotsman.
    - coldtea 13y ago
      And yet, if one avoids this supposed "fallacy", the logical conclusion would be that no group has any definite properties, and everything is interchangeable. So, yes, there actually are things that "no true scotchman" would do (else there's no reason to invoke a group named "scotchmen" at all).
      - kansface 13y ago
        Sure, but the restrictions are 1. be from Scotland 2. be human In the case of OP, valuation is simply what the market will pay to own the stock of a company. Sometimes it coincides with what any individual will pay, sometimes not. There is no sort of magical intrinsic value to a company. All we are really doing is arguing over the definition of valuation.
  - coldtea 13y ago
    It's a property based on the premise that not just any made up number is equally good as a valuation... The very definition of "valuation" points to the underlying "true" part -- valuation means an attempt to guess at the value of something. It might not be possible to have a perfect guess (because nobody has all the data or knows all the future events that might affect it), but it's very possible to know a valuation if BS and critisize it. Would you buy a Denny's dinner in rural Nebraska for 1 billion dollars?
nrao123 13y ago
Thanks Paul for this. I posted this in the comment thread an hour ago making the same exact point but was lost in the comment weeds. I guess PG'a secret Algo of surfacing sensible comments to the top is working. https://news.ycombinator.com/item?id=6745220 https://news.ycombinator.com/item?id=6745220
larrys 13y ago
"The fact that he was completely wrong" In making any business decision you are also looking at the downside vs. the upside. On "Let's Make a Deal" [1] there was always "door number two" or three and you had to decide if you were going to take the chance or not. Now it's one thing to pass up some "Furniture from Broyhill" and another thing to pass up a billion dollars or any large sum. Now most of us don't know what "door number two" was so it's hard to say. So of course people are going to comment on how they view the situation from what they do know. [1] http://en.wikipedia.org/wiki/Let%27s_Make_a_Deal http://en.wikipedia.org/wiki/Let%27s_Make_a_Deal
mkramlich 13y ago
... and here's where you receive a flood of scathing email from teen/twentyish brogrammers and 37Signals fans across the planet (sent via Gmail, of course), saying basically, "Oh like what would you know about Facebook anyway?" Er. Wait a minute. :-) A little less meta: I think your point is valid but I think the OA's satire was an illustration of a valid criticism of a kind of valuation model that's driven more by herd mentality, and where anything giveth ephemerally can also be taketh away ephemerally if the pendulum swings back to fundamentals-driven before the bubbled company in question can build up real profits to start justifying its currently frothy 'maybe someday' valuation. Facebook, like Google, has been an exceptional case in several ways, it could be argued. But exceptions don't invalidate the wisdom of a general rule of thumb.
- paul 13y ago
  Actually, exceptions are where all of the money is made in this business. The top 1% of startups produce the majority of the returns, which is why we all want to invest in the next Google or Facebook, even if we're not 100% certain that it will in fact be the next Google or Facebook.
  - mkramlich 13y ago
    Good point and agreed. So the application in the case of this topic clearly is that the investors are likely betting, hoping, that SnapChat will be one of these exception cases. The one whose payoff more than makes up for losses on all their other little startup bets. It's as if there are two ways of valuing companies, two competing schools, and their methodologies are opposed, arguably in outright conflict -- they can't both be true. One is the valuation on so-called fundamentals, the other is the bet that this will one day become one of those extreme outliers whose ROI is such a high multiple that it makes up for the losses on other failed bets. They're both valid models, like Newton or Einstein, that produce correct (enough) results, but in different situations and at different scales. The trick is to know when to use one model to make your decision, or the other. To carry this forward, 37Signals/JF/DHH clearly prefer/bias to the Newton method, in this analogy, and YC & SV VC the Einstein. Or to change the analogy, the former models are based on arithmetic, the latter on statistics. They both can work well but each in a different context with different endgame goals. (And thanks for the reply. I'm a fan of your work.)
pearjuice 13y ago
I wasn't thinking he's making fun of snapchat but this is obviously (re)posted with the context of snapchat its recent valuations in mind. You are completely missing the point of the article, too. It is referring to the bubble of air which valuations are based on.
coldtea 13y ago
>He was making fun of facebook's $6.5b valuation (or maybe it was $10b). The fact that he was completely wrong (fb is now over $100b) doesn't stop people here from thinking that there's wisdom in this nonsensical post Errm, how does the fact that FB is "now over $100b" prove that he was "completely wrong"? How about: he was right that such valuations are crazy when FB was at $6.5b, and he is even more right now, as $100b is even more crazy. It's not like FB somehow PROVED it deserved to be valuated as $6.5 at that time -- it just bubbled up even more in the stock market since. If his premise was that such stock valuations are BS, then that's even more ammunition to his argument.

by paul 13y ago

wensing 13y ago

Is there any way to know with any degree of confidence whether something is a flash in the pan or a viable company? It isn't just about growth is it?

paul 13y ago
It helps to know the founders and internal metrics, which nobody here does. I honestly don't know if Snapchat is worth $3B or not, but I certainly wouldn't dismiss them.

outside1234 13y ago

its not nonsensical. there is truth in pointing out that a VC valuation does not equate to a true valuation - either in the upside or downside.

csomar 13y ago
Facebook generates $8bn of revenue per year. I guess those who valued Facebook at $6bn at that time were quite wise. You can't say anything about the current investors. Only the future will tell if it's a wise investment.
- auctiontheory 13y ago
  Valuation is a very complex topic, but in "classical" finance, it has more to do with earnings than revenue.
- mkramlich 13y ago
  > I guess those who valued Facebook at $6bn at that time were quite wise. strictly speaking: or fools that got lucky
- coldtea 13y ago
  I could generate $8bn of revenue by selling $100 bills for $10. Profit now, that's another thing.
kansface 13y ago
What mysterious property is a "true valuation" and how does one measure it?
- edhebert 13y ago
  By asking a Scotsman.
  - coldtea 13y ago
    And yet, if one avoids this supposed "fallacy", the logical conclusion would be that no group has any definite properties, and everything is interchangeable. So, yes, there actually are things that "no true scotchman" would do (else there's no reason to invoke a group named "scotchmen" at all).
    - kansface 13y ago
      Sure, but the restrictions are 1. be from Scotland 2. be human In the case of OP, valuation is simply what the market will pay to own the stock of a company. Sometimes it coincides with what any individual will pay, sometimes not. There is no sort of magical intrinsic value to a company. All we are really doing is arguing over the definition of valuation.
- coldtea 13y ago
  It's a property based on the premise that not just any made up number is equally good as a valuation... The very definition of "valuation" points to the underlying "true" part -- valuation means an attempt to guess at the value of something. It might not be possible to have a perfect guess (because nobody has all the data or knows all the future events that might affect it), but it's very possible to know a valuation if BS and critisize it. Would you buy a Denny's dinner in rural Nebraska for 1 billion dollars?

nrao123 13y ago

Thanks Paul for this. I posted this in the comment thread an hour ago making the same exact point but was lost in the comment weeds. I guess PG'a secret Algo of surfacing sensible comments to the top is working. https://news.ycombinator.com/item?id=6745220 https://news.ycombinator.com/item?id=6745220

larrys 13y ago

"The fact that he was completely wrong" In making any business decision you are also looking at the downside vs. the upside. On "Let's Make a Deal" [1] there was always "door number two" or three and you had to decide if you were going to take the chance or not. Now it's one thing to pass up some "Furniture from Broyhill" and another thing to pass up a billion dollars or any large sum. Now most of us don't know what "door number two" was so it's hard to say. So of course people are going to comment on how they view the situation from what they do know. [1] http://en.wikipedia.org/wiki/Let%27s_Make_a_Deal http://en.wikipedia.org/wiki/Let%27s_Make_a_Deal

mkramlich 13y ago

... and here's where you receive a flood of scathing email from teen/twentyish brogrammers and 37Signals fans across the planet (sent via Gmail, of course), saying basically, "Oh like what would you know about Facebook anyway?" Er. Wait a minute. :-) A little less meta: I think your point is valid but I think the OA's satire was an illustration of a valid criticism of a kind of valuation model that's driven more by herd mentality, and where anything giveth ephemerally can also be taketh away ephemerally if the pendulum swings back to fundamentals-driven before the bubbled company in question can build up real profits to start justifying its currently frothy 'maybe someday' valuation. Facebook, like Google, has been an exceptional case in several ways, it could be argued. But exceptions don't invalidate the wisdom of a general rule of thumb.

paul 13y ago
Actually, exceptions are where all of the money is made in this business. The top 1% of startups produce the majority of the returns, which is why we all want to invest in the next Google or Facebook, even if we're not 100% certain that it will in fact be the next Google or Facebook.
- mkramlich 13y ago
  Good point and agreed. So the application in the case of this topic clearly is that the investors are likely betting, hoping, that SnapChat will be one of these exception cases. The one whose payoff more than makes up for losses on all their other little startup bets. It's as if there are two ways of valuing companies, two competing schools, and their methodologies are opposed, arguably in outright conflict -- they can't both be true. One is the valuation on so-called fundamentals, the other is the bet that this will one day become one of those extreme outliers whose ROI is such a high multiple that it makes up for the losses on other failed bets. They're both valid models, like Newton or Einstein, that produce correct (enough) results, but in different situations and at different scales. The trick is to know when to use one model to make your decision, or the other. To carry this forward, 37Signals/JF/DHH clearly prefer/bias to the Newton method, in this analogy, and YC & SV VC the Einstein. Or to change the analogy, the former models are based on arithmetic, the latter on statistics. They both can work well but each in a different context with different endgame goals. (And thanks for the reply. I'm a fan of your work.)

pearjuice 13y ago

I wasn't thinking he's making fun of snapchat but this is obviously (re)posted with the context of snapchat its recent valuations in mind. You are completely missing the point of the article, too. It is referring to the bubble of air which valuations are based on.

coldtea 13y ago

>He was making fun of facebook's $6.5b valuation (or maybe it was $10b). The fact that he was completely wrong (fb is now over $100b) doesn't stop people here from thinking that there's wisdom in this nonsensical post Errm, how does the fact that FB is "now over $100b" prove that he was "completely wrong"? How about: he was right that such valuations are crazy when FB was at $6.5b, and he is even more right now, as $100b is even more crazy. It's not like FB somehow PROVED it deserved to be valuated as $6.5 at that time -- it just bubbled up even more in the stock market since. If his premise was that such stock valuations are BS, then that's even more ammunition to his argument.