I was going to say something trite like "Money is the number boring people use to keep score."
But the piece near the end on other measurements reminded me of a key piece of advice I learnt from my amazing sister Millie (founder of www.iamlovable.com):
"Don't place your happiness in other people or other things. If you need them to make you happy, then they can also make you sad."
As much as I agree with the author's point, it's misleading to refer to "the market" when you're really talking about a very small subgroup of people. Much of the distortion and irreality in startup world stems from the fact that companies are not selling to a broad market, but trying to tell persuasive stories to a small group of wealthy investors. Using "the market" to refer to that small group creates confusion that I worry is intentional.
IMO that is still a market (if you have 1 buyer and 1 seller, you have a market), albeit a small and illiquid one.
I think what you are getting at is that because the market for private companies is illiquid, rife with information asymmetry, and is opaque, it is difficult to gauge true market price.
Yes, but I mean something else as well. We're taught that free enterprise is the socially optimal way to allocate resources. Part of that is the assumption that 'the market' that is doing the allocating represents a wide cross-section of society. In this case it's a very small clique, and it takes advantage of our cultural esteem for free enterprise and capitalism to mask the fact that there's not a lot of contact with "the market" as we normally understand it.
There are so many assumptions to unpack in this comment.
1) Some people think that free enterprise is the socially optimal way to allocate resources. Many people don't. I think free enterprise allocates resources in a financially optimal way - sometimes that lines up with socially optimal and sometimes it does not.
2) I think it's a bad assumption to think that anything smaller than the consumer goods market or the public stock market is "not a real market". There are hundreds of VC firms and thousands of startups. It's a much bigger market than most B2B products, it's probably as (in?)efficient as the job market.
3) Given the way public companies are plowing their profits into share buybacks rather than investment, I generally hold private companies in higher esteem than the average public company at the moment.
Yeah, valuation is nothing. But there are numbers like cash flow, cash reserve, company book value, and even relations like earnings to cost, earnings to book value which can give a good inside about how strong your company is. These numbers are much smaller than valuation, but they give a more reliable picture. Don't evaluate like an investor, but like a (long term) stock trader would.
PS: Sorry if the terms are wrong. There are actual terms for these numbers, but I never learned them in English. Hope from the descriptions you can make out which numbers I mean.
>"And the markets can move on you and one day you are worth $2bn and the next day your are worth $500mm. Did you just mess up by 75%? No. The market moved on you.
>But please don’t measure yourself on valuation. It might make you feel good today. But it won’t make you feel good every day."
I wish we could give this perspective to the CEOs of Fortune 500 companies as well.
While broadly I have to
agree with much of what Fred
said there, I do have some
qualifications.
At the end Fred did mention
family, etc. Here he was way
too weak: A recent phrase is
"The greatest prize life has to
offer", and that's husband and
wife, house and home,
mother and father, with
everyone busy, productive, and, thus,
happy.
"Thus happy"? One of the standard
ways to be unhappy is to be idle,
doing nothing. One of the best ways
to be happy is to be busy and productive.
All that said, I have three points
of qualification:
(1) It can be a bit self-serving
for a venture partner to
tell everyone else, especially
entrepreneurs, that they should
not think too much about valuation.
(2) I have wondered if the recent
late stage equity fundings with
high valuations have a dark side:
Maybe the end of that little
process over time stands on average to
favor the
venture firm: If (A) the
company does not do really well, then
the venture firm still stands to
get their money back via the
term sheet liquidation preferences.
And (B) if the company does do well,
then the high valuation might be
seen as a starting point for negotiations
with the investment bankers on
the offering price of the IPO
or an M&A exit
in which case the venture firm
not only gets their money back
but makes a bundle (big ROI).
(3) As has become more common recently
in the press on startups, now
the way may be clear for
some significant number of
solo entrepreneurs with little
or no equity funding
to create a company worth
$1 billion just from
net present value of
after tax earnings
in which case all the
discussion about equity
funding is next to moot.
The common example is the
Canadian
romantic match making site
Plenty of Fish which was
long just one guy, two
old Dell servers, and
revenue of $10 million a year
just from ads via Google.
So, that's about $10 million
a year pre-tax earnings
and, thus, maybe, a company
worth $1 billion.
I know; I know:
From none other than
John Doerr at KPCB,
"Ideas are easy and worthless.
Execution is everything.".
Hmm ...: Given an idea,
now plug together a development
computer, install a lot of free
infrastructure software,
use some frameworks, etc. to
write the routine software,
write the rest, the
secret sauce, as just
ordinary code,
plug together a server,
plug into an ISP,
get ads from ad servers on-line,
use a content distribution
network (CDN) to handle
much of the Internet traffic,
go live, get some revenue
and earnings,
maybe expand to a local
colocation site or to
the cloud, and grow.
So, where's this
execution that is
not routine!
Or, for such a scenario,
given a good idea, the
rest is routine. Then
the idea and associated
secret sauce are
"everything"
and likely challenging.
Or, for a venture partner to
claim that ideas are worthless
looks like an initial negotiating
position to claim that what the
entrepreneur has before a
term sheet is worthless.
I think it's important for you and your competitors to be aware of how much value you've added to society at any given time - Your company's valuation does that pretty well. It holds people accountable. I'm sick of hearing the "it's outside of my control" argument when things go bad - The moment you "lose control" of the market, that's the moment you failed. When you are a leader in your field, there is no excuse for not understanding the market - It just means you got lazy.
But the piece near the end on other measurements reminded me of a key piece of advice I learnt from my amazing sister Millie (founder of www.iamlovable.com):
"Don't place your happiness in other people or other things. If you need them to make you happy, then they can also make you sad."