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The problem with this "bet" is that it's made in terms of valuations that VCs make up in the first place. To say that Pinterest is worth 11 billion in a privat
by aliston 12y ago
The problem with this "bet" is that it's made in terms of valuations that VCs make up in the first place. To say that Pinterest is worth 11 billion in a private, non-liquid market means nothing -- If you give me a 2x liquidation preference / full ratchet / board seats etc., yeah, sure, I'll invest at a ridiculous valuation because there is no downside risk.
I would take this bet without blinking if it were in terms of a reasonable multiple on earnings in 5 years. However, my prediction is that the companies Sam mentions won't go public for another 10+ years. The high valuations in SV circles right now are influenced by increasingly complex balance sheets, which will take a long time to unwind. As a result, this bubble in valuations will eventually deflate, but a lot more slowly than the 2000 bubble did.
- 2arrs2ells 12y agosama addresses the liquidation preference point: "Private companies are valued as of their last round that sold stock with at most a 1x liquidation preference or last secondary transaction of at least $100MM of stock."
- aliston 12y agoWhatever -- a 1x liquidation preference in the form of a nearly full ratchet, which is how most of these late stage investments are being structured, is still a far cry from the way that an investor in a public market would value these companies.
- aliston 12y agoBy the way, this isn't some theoretical situation. Box did exactly what I'm describing. Even in a frothy Fed-fueled stock market, they IPO'd at a lower valuation than their last private market round, which I'm sure was full of all sorts of balance sheet gimmicks, and the stock has been on a downward trajectory since.