Fuzzy, insane tech dollars
What is it with these oddball Silicon Valley tech valuations? asks Steve Mullins. Pinterest has just raised another $367 million, making it worth $11 billion as it looks to find a viable business model. Uber rival Lyft snagged $530 million recently giving it a $2.5 billion valuation, while Snapchat is reckoned to be worth a whopping $15 billion as the company at the same time the company says it is developing new revenue initiatives. Where do those numbers come from? They’re down to fuzzy, insane maths, according to Bloomberg.
“The numbers are sort of made-up,” Bloomberg says. “ For the most mature start-ups, investors agree to grant higher valuations, which help the companies with recruitment and building credibility, in exchange for guarantees that they'll get their money back first if the company goes public or sells. They can also negotiate to receive additional free shares if a subsequent round's valuation is less favourable.”
Sounds pretty cosy.
Some VCs plead that valuations are just placeholder numbers, part of an equation fuelled by other, more important factors, says Bloomberg What might they be? Market share, growth projections… and, importantly, a founder's ego.
While the word ‘bubble’ is used with ever greater frequency when it comes to Valley chat, some do know better. Henry Blodget is one of those. He has no problem at all with Snapchat’s $15 billion tag. How come? “There's a lot of promise. You have to take it on faith they'll figure out a model,” he says.
Do we have faith in Henry Blodget? After all, he’s the same former-Merrill Lynch analyst who was handed a permanent ban from the securities industry and has to stump up $4 million when he agreed to settle alleged securities fraud charges back in 2002.