The Rationale for Investing in Pinterest

I didn’t realize this tweet would create so many interesting conversations about Pinterest. While I think the current value is a *bit* on the high side, I do believe Pinterest is a very valuable web property, despite the chorus of the concerned. The site has been growing its user base organically at an impressive clip. Note that one of the founders already has about 340,000 followers, which can give you some clue as to the number of registered users. Now that social is part of the fabric, visual bookmarking, or “pinning,” is possible, and, well, users seem to get it.

Here are some of the most common reactions against I’ve seen:

• Where’s the revenue? Pinterest won’t even pay attention to revenue for years. It’s about adding more users and engaging them more on the platform. Early-stage valuations like this don’t have much to do with any existing revenue, it has to do with competition for the deal (assume this was competitive) and the balance between the cost of acquiring new users versus the potential lifetime value of those users, not to mention the strategic needs and blind spots of e-commerce incumbents.
• Why raise so much money? It’s there for the taking, and in this technical talent market, Pinterest will have to hire quickly, create incentives, move locations (probably), establish a marketing budget, and possibly acquire technologies and/or a smaller company with technology. Not to mention fending off a fight from Tumblr, which views Pinterest as competition.
• What kind of company is Pinterest? We don’t know just yet, but I think it’s about discovery. Also, one angle that hasn’t been investigated is the data side. I believe Pinterest is at the core a data company, where they can capture the most data around a particular image on the web as well as from images uploaded on to the system.
• Isn’t it just like Tumblr? Lots of folks believe this. It’s a grey area for me. There are some Tumblr themes which look just like Pinterest, and one could expect Pinterest to also offer themes. Whatever collision course these two networks are on, I’m not worried. I actually believe that both of these will start to siphon attention away from Facebook, but that Facebook is so big, it will help out Tumblr and Pinterest and not really materially affect Facebook, but cause a little dent.

When I first started tinkering around with Pinterest a few months ago, it initially reminded me of Quora, another site I love and one that is controversially valued. Both sites are very visual and encourage users to stick around, doing little tasks, and reorganizing the web one click at a time. And, Pinterest is just easier to interact with (comparatively), and it’s already growing like crazy, and given the current climate as well as the shift from search to discovery, investors are more than ready to pour jet fuel on sites like this to build stronger teams, market internationally, and acquire more users. This is likely why Pinterest sought to raise again so quickly, and likely why investors (who see Tumblr growing stronger) wanted to pay up to play.