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Is calculated valuation (not market cap!) the only metric relevant to a VC when talking about the size of a company? What about MRR, YRR, profits, number of em
by philippnagel 12y ago
Is calculated valuation (not market cap!) the only metric relevant to a VC when talking about the size of a company?
What about MRR, YRR, profits, number of employees, revenue/profit per employee?
The only ones profiting from high valuations are VCs' themselves. Therefor one should be really skeptical when reading such articles.
- mathattack 12y agoValuation is a simple metric that can be used to compare companies to each other, and is language that investors understand. It's also easy for founders and employees to follow. Many times companies trump up all other metrics when valuation suffers. But valuation isn't the only one. When there is a high valuation (and ultimately market cap) the employees who own shares do well too.
- tlb 12y agoValuation is people's best estimate of discounted future profits. It's true that the discount rate varies with macroeconomic changes, but rarely by as much as a factor of 2 over the last 20 years. When trying to express the long-term potential of a business, a factor of 2 is noise. You're lucky if you can get the number of digits right. MRR/YRR measures the business today, but the long-term prospects are more interesting. Number of employees or revenue/profit per employee don't measure business potential. Some huge businesses (Wal*mart) have low revenue/employee. Some small businesses (specialty consulting) have high revenue/employee.