A Poor Man’s Guide to Internet Valuations

I’m writing this short post today because I have a feeling there’s going to be a LOT of talk about valuation for startups coming soon (as well as mentions of the word “bubble”), if there isn’t already. Let me “disclaimerize” myself first by stating that (1) I am not an investor; (2) I have not invested in any companies; and (3) I have never valued startup companies professionally. Now that you know I’m not credible, here’s my point of view on valuations based on market observations:

The valuation during an early funding round for an internet and/or technology startup company is NOT:

  • a reflection of the company’s earning potential.
  • contingent on success in executing on any one particular business model.

On the other hand, a valuation during a funding round for these types of companies ARE driven by:

  • investors’ willingness to pay (most important driver!).
  • competition among investors hungry to get into a deal.
  • demand for companies of similar quality, scope, scale, market.
  • a host of other items like team, technology, etc., which I’ve listed in this post on Path’s recent Series A raise.