Whats Hot-Disconnect- Web companies valuations vs. current economy
By Chris Wadden
As an angel investor I have spent the last 3 years advising companies to be reasonable about their valuation for their A round. This is an incredibly important and contentious decision (setting the bar) for both the entrepreneur and the investor at this stage of the company. Investors point out current economic conditions, loan activity and other negative economic news while the entrepreneur cites the one company in roughly the same space that sold earlier in the year at would appear to be an inflated value. My concern is that in recent months business journals and publications have highlighted some of the extraordinary valuations re-creating unreal expectations from entrepreneurs again. Examples include valuations for Godaddy.com, Foursquare, Quora, Blippy Inc, and even Twitter which all have monetization issue. Entrepreneurs should view these as validations at the top end and are not the expected mean. We have come a long way from dot.com boom and now have relatively good metrics (CPM and CPK, for example) to forecast an internet company’s financial performance. There are always other premiums such as strategic value, synergies and competitive positioning that distort the results of fundamental business valuation models. I really believed we were returning to sound business fundamentals for valuation but these examples are creating some doubt. Are we faced with such a stagnant investment market where funds or companies that are cash flush and are desperate to generate growth or hope for a better return than is available in the financial markets? Is it simply hype to rev- up the M&A market or are there underling factors that I am missing? Help me by commenting below.
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Whats Hot-Disconnect- Web companies valuations vs. current economy
By Chris Wadden
As an angel investor I have spent the last 3 years advising companies to be reasonable about their valuation for their A round. This is an incredibly important and contentious decision (setting the bar) for both the entrepreneur and the investor at this stage of the company. Investors point out current economic conditions, loan activity and other negative economic news while the entrepreneur cites the one company in roughly the same space that sold earlier in the year at would appear to be an inflated value. My concern is that in recent months business journals and publications have highlighted some of the extraordinary valuations re-creating unreal expectations from entrepreneurs again. Examples include valuations for Godaddy.com, Foursquare, Quora, Blippy Inc, and even Twitter which all have monetization issue. Entrepreneurs should view these as validations at the top end and are not the expected mean. We have come a long way from dot.com boom and now have relatively good metrics (CPM and CPK, for example) to forecast an internet company’s financial performance. There are always other premiums such as strategic value, synergies and competitive positioning that distort the results of fundamental business valuation models. I really believed we were returning to sound business fundamentals for valuation but these examples are creating some doubt. Are we faced with such a stagnant investment market where funds or companies that are cash flush and are desperate to generate growth or hope for a better return than is available in the financial markets? Is it simply hype to rev- up the M&A market or are there underling factors that I am missing? Help me by commenting below.