5 ms·

I'd also add that until the public validation of an IPO and some time trading on the markets, tech companies have just become investment "tokens" that hold arbi

by bane 11y ago

I'd also add that until the public validation of an IPO and some time trading on the markets, tech companies have just become investment "tokens" that hold arbitrary amounts of wealth as "valuations" that make no meaningful sense. M&A efforts are simply capturing this fanciful valuation and hoping they can sell this token off in some way for more to somebody else. It's like putting $1 in a sock and under your mattress, claim it's worth $1million and never letting up on that claim by trying to sell your "money sock 1.0" on the open market. You might even be able to get somebody to buy your "million dollar" sock and they'll go and claim to everybody that it's worth this ridiculous amount (or even more ridiculous they'll trade you their "million dollar" hat for your sock so you can both claim private market validation). Then if the hype lives long enough, they can then sell it for $1.2million to another private buyer, or tear it up and sell it off in threads for even more "buy a genuine thread from the million dollar sock! only $1,000!". It's almost completely divorced from reality.

GuiA 11y ago
Yes, but you can sell info about people who have worn the sock to advertisers.
- bane 11y ago
  If you're not paying to wear the socks, you may be the product.
  - kenrikm 11y ago
    But the sock has revenues, even if it's a red sock that has no hope of turning black.
pbreit 11y ago
If you're able to sell a sock for $1m then, yes, it's worth $1m. But I strongly suspect that you could not. Which is why the analogy is flawed.
- hueving 11y ago
  No, but you may be able to sell a 0.01% stake in the sock to someone for $100 and tell everyone that makes it worth $1m.
  - kenrikm 11y ago
    By telling the investors that while it may look like a sock now, later it'll be a sock puppet and you can sell tickets to the show due to the network effects.
- Lawtonfogle 11y ago
  You get enough people to preach it is worth $1m and you'll find many individuals really to buy 1/1000 for $900. Done on a small scale, this would be fraud and would be illegal. But remember, it is illegal because it does work. On the large scale, you just have to wine and dine enough pension fund managers who are in way over their head.
_delirium 11y ago
I'm not sure public markets are a unique way of getting "real" prices. Private-equity sales are a real market with real money; if Google buys a company for $50m, that's an actual market transaction that valued the company at $50m. Is the idea that public markets provide better price discovery than private sales do? If so, is there empirical evidence that publicly traded companies really are more accurately valued than privately held companies are? (Genuine question; it's possible there is such evidence, but I haven't found a good article on the subject.)
- darkmighty 11y ago
  It's a fair hypothesis to me: the public market has a larger amount of people, so more information; it also has mechanisms such as securities that benefit highly and rapidly information bearers. But the idea that private investors' valuation is not "real" somehow sounds silly to me. The companies are still getting sold. The companies/investors that buy them have real value and expect to generate enough revenue from the acquisitions amounting at least to the acquired value. The question then (and I think is a good one), is why private investment is getting more prevalent if public markets have more efficient valuation mechanisms. I think the answer is that private investors are more willing to 'kickstart' so to speak the early stages of startups, and from then have grown to dominate the investment market to their great benefit.
  - cmullen 11y ago
    Public markets investors typically have far less information about companies than do private investors. For most technology companies, the probability of success / profit is driven more by specific company factors rather than larger industry and macro trends. Most public tech companies are understandably worried about disclosing detailed sales metrics / technology roadmap to all investors for competitive reasons; however, as part of any PE / VC backed investment process, private investors are typically given access to all of this detailed information.
    - darkmighty 11y ago
      Ah yes so private investors have more specific information while public market investors focus on overall market trends. But is there no way to public investors to get a glimpse of the internals of the companies without disclosure of competitive information? Maybe through some kind of report by a consultancy under NDA, or a small group of investors under NDA giving an investment report?
tsotha 11y ago
The great thing is when one of your other properties has a good year you can lower the valuation of that sock to reduce your tax burden.
sfjailbird 11y ago
You just described the stock market. Public tech companies that make no profit (and/or issues no yields) trade at 30 times earnings. No connection to fundamentals, but everybody just agrees that is what it should cost.
- mdemare 11y ago
  Profits _are_ earnings. Companies that make no profit and trade at 30x earnings, trade at 0.
zby 11y ago
I don't see how this hype game you describe would be characteristic of private sales more than of public offerings. It is the mechanism that drives all bubbles. In fact root of the often criticized short termism of publicly traded companies is exactly this hype game - the company management paints the sock impressively to fuel the hype.
Lawtonfogle 11y ago
Let me guess the end game: after a number of trades, ending up with pension funds having a large count of both both the money sock and money hat threads.

by bane 11y ago

GuiA 11y ago

Yes, but you can sell info about people who have worn the sock to advertisers.

bane 11y ago
If you're not paying to wear the socks, you may be the product.
- kenrikm 11y ago
  But the sock has revenues, even if it's a red sock that has no hope of turning black.

pbreit 11y ago

If you're able to sell a sock for $1m then, yes, it's worth $1m. But I strongly suspect that you could not. Which is why the analogy is flawed.

hueving 11y ago
No, but you may be able to sell a 0.01% stake in the sock to someone for $100 and tell everyone that makes it worth $1m.
- kenrikm 11y ago
  By telling the investors that while it may look like a sock now, later it'll be a sock puppet and you can sell tickets to the show due to the network effects.
Lawtonfogle 11y ago
You get enough people to preach it is worth $1m and you'll find many individuals really to buy 1/1000 for $900. Done on a small scale, this would be fraud and would be illegal. But remember, it is illegal because it does work. On the large scale, you just have to wine and dine enough pension fund managers who are in way over their head.

_delirium 11y ago

I'm not sure public markets are a unique way of getting "real" prices. Private-equity sales are a real market with real money; if Google buys a company for $50m, that's an actual market transaction that valued the company at $50m. Is the idea that public markets provide better price discovery than private sales do? If so, is there empirical evidence that publicly traded companies really are more accurately valued than privately held companies are? (Genuine question; it's possible there is such evidence, but I haven't found a good article on the subject.)

darkmighty 11y ago
It's a fair hypothesis to me: the public market has a larger amount of people, so more information; it also has mechanisms such as securities that benefit highly and rapidly information bearers. But the idea that private investors' valuation is not "real" somehow sounds silly to me. The companies are still getting sold. The companies/investors that buy them have real value and expect to generate enough revenue from the acquisitions amounting at least to the acquired value. The question then (and I think is a good one), is why private investment is getting more prevalent if public markets have more efficient valuation mechanisms. I think the answer is that private investors are more willing to 'kickstart' so to speak the early stages of startups, and from then have grown to dominate the investment market to their great benefit.
- cmullen 11y ago
  Public markets investors typically have far less information about companies than do private investors. For most technology companies, the probability of success / profit is driven more by specific company factors rather than larger industry and macro trends. Most public tech companies are understandably worried about disclosing detailed sales metrics / technology roadmap to all investors for competitive reasons; however, as part of any PE / VC backed investment process, private investors are typically given access to all of this detailed information.
  - darkmighty 11y ago
    Ah yes so private investors have more specific information while public market investors focus on overall market trends. But is there no way to public investors to get a glimpse of the internals of the companies without disclosure of competitive information? Maybe through some kind of report by a consultancy under NDA, or a small group of investors under NDA giving an investment report?

tsotha 11y ago

The great thing is when one of your other properties has a good year you can lower the valuation of that sock to reduce your tax burden.

sfjailbird 11y ago

You just described the stock market. Public tech companies that make no profit (and/or issues no yields) trade at 30 times earnings. No connection to fundamentals, but everybody just agrees that is what it should cost.

mdemare 11y ago
Profits _are_ earnings. Companies that make no profit and trade at 30x earnings, trade at 0.

zby 11y ago

I don't see how this hype game you describe would be characteristic of private sales more than of public offerings. It is the mechanism that drives all bubbles. In fact root of the often criticized short termism of publicly traded companies is exactly this hype game - the company management paints the sock impressively to fuel the hype.

Lawtonfogle 11y ago

Let me guess the end game: after a number of trades, ending up with pension funds having a large count of both both the money sock and money hat threads.