The real fools are the journalists who uncritically parrot these bogus valuations. Every so often someone will write a good analysis like this one, but next week the headlines and buzz will be some other bullshit valuation.
Come to think of it, is there anything of significant nuance that journalists do get right?
Legal journalism is surprisingly good. "Waymo filed a brief saying...; Uber denied..." I think it's because there is no pretense of reaching an objective conclusion. In other kinds of journalism, reporters typically will take peoples' one sided accounts and present them as facts, obfuscating that state of affairs in the name of protecting sources. But in an article about a lawsuit, everyone acknowledges that the filings are each party's one-sided account.
I've been using longform.org Its a manually curated list by a group that cares about the art of journalism, and highlights the best pieces of longform journalism in the press on a feed.
I've found the accuracy of the pieces to be far higher than most other sources. I'm guessing a lot of that has to do with the fact that in order for a journalist to write a 20 page report on a topic, they have to research it a whole lot better than writing another 2 paragraph summary for some online editorial. That, and only the better publishers tend to be able to afford such research, and they tend to have higher standards.
The measuring stick for journalists being right is whether their content brings eyeballs to ads. That journalists are paid to be accurate is just another aspect to the fiction this article talks about.
I think the reality of most tech journalism is that the journalist is being paid per-article, and not particularly well at that. The time required to adequately fact-check and get the details right would mean lower output and, thus, lower income.
> But not every startup is grossly overvalued. For example, researchers found Uber Technologies Inc. has only one instance of a liquidation preference. The study said Uber’s valuation of $69 billion is only 12 percent higher than the fair value approximation. Even at the lower estimate, Uber would still be the world’s most valuable tech startup.
That definitely will incentivize the current investors to make sure Uber survives. Didn't realize this.
It's also astonishing, because hitting that valuation didn't they essentially take a lot of the "investment" structured as loans? [1][2]
Aren't all private market valuations fiction? I don't think investors in private placements are wrong on trend (they're smarter than I am and spend all day tracking this stuff) but as far as actual numbers, I don't believe them.
Public market valuations are a bit fictitious as well, but at least your holdings in those companies are:
* regulated to the point you can compare across companies
* forced to be truthful by law
* liquid so you can move in and out of positions at will
Private valuations combine "assessing value" with "striking a deal". I don't think it makes much sense to treat them as real numbers when it's possible for people to say things like "we don't want a down round later, value us at 20% less than that".
> The study found that it can exaggerate a company’s valuation by as much as 94 percent.
Whilst it may be technically true, it's not useful to employees granted common shares. You might naively think you should haircut the value of your stock by 50% to get a fair valuation. But that's not true. Depending on the exit/IPO valuation, a liquidation preference could reduce the amount paid to common shareholders by anything from zero to 100% (i.e. infinite overvaluation of common equity).
> The study said Uber’s valuation of $69 billion is only 12 percent higher than the fair value approximation.
Yes, if a company's valuation goes up significantly between rounds, then the liquidation preferences (which are a form of downside protection) will have less (or perhaps) zero effect.
I find this really enlightening when all I've ever heard about from the under 30 generation was how they were going to "do thing different" and always apply social conscience.
The study found that it can exaggerate a company’s valuation by as much as 94 percent.
Ratchets can inflate a startup’s value by 56 percent or more, the study said.
etc.
Many if not all of these "techniques" sure sound old school to me.
I'm surprised to see them framing a liquidation preference as an unusual provision. Don't almost all venture deals include a 1x liquidation preference? Seems like a reasonable protection for an investor putting money into a company with no revenue or assets.
Tl;dr on this article is that a private valuation is more than a number. The whole picture must be considered. A high valuation with onerous terms might be "lower" than a lower valuation with reasonable or especially favorable terms.
One thing I don't get is: isn't a lower valuation on good terms better for founders? Why are founders playing the unicorn game at all?
A lot of the preferred equity terms really make them much more like bonds than common stock. Quick quiz, what's the difference between a zero-coupon convertible bond and preferred stock with a 3x liquidation preference?
We can label it with all sorts of names but at the base level it's just old-fashioned corruption. Favors for favors and I-scratch-your-back kind of stuff.
No, we can call it the result of negotiation between companies and investors. It's not at all uncommon for investors to use a liquidation preference as a negotiating point to counter founders' demands for a higher valuation.
[+] [-] wildmusings|8 years ago|reply
Come to think of it, is there anything of significant nuance that journalists do get right?
[+] [-] AndrewOMartin|8 years ago|reply
Just getting on the shortlist for a year is a significant achievement.
http://www.private-eye.co.uk/paul-foot-award/all
[+] [-] rayiner|8 years ago|reply
[+] [-] ep103|8 years ago|reply
I've found the accuracy of the pieces to be far higher than most other sources. I'm guessing a lot of that has to do with the fact that in order for a journalist to write a 20 page report on a topic, they have to research it a whole lot better than writing another 2 paragraph summary for some online editorial. That, and only the better publishers tend to be able to afford such research, and they tend to have higher standards.
[+] [-] avaer|8 years ago|reply
[+] [-] cal5k|8 years ago|reply
[+] [-] abhi3|8 years ago|reply
[+] [-] currymj|8 years ago|reply
the financial times has a reputation for not being awful because you can't trade on bullshit, but who knows? I can't actually evaluate.
[+] [-] AznHisoka|8 years ago|reply
[+] [-] thedonkeycometh|8 years ago|reply
[deleted]
[+] [-] elmar|8 years ago|reply
https://medium.com/@Alexoppenheimer/you-pick-the-valuation-i...
[+] [-] lettergram|8 years ago|reply
> But not every startup is grossly overvalued. For example, researchers found Uber Technologies Inc. has only one instance of a liquidation preference. The study said Uber’s valuation of $69 billion is only 12 percent higher than the fair value approximation. Even at the lower estimate, Uber would still be the world’s most valuable tech startup.
That definitely will incentivize the current investors to make sure Uber survives. Didn't realize this.
It's also astonishing, because hitting that valuation didn't they essentially take a lot of the "investment" structured as loans? [1][2]
[1] https://www.theverge.com/2016/6/14/11936316/uber-leveraged-l...
[2] https://www.wallstreetoasis.com/forums/uber-last-35b-raise-d...
[+] [-] mooreds|8 years ago|reply
Public market valuations are a bit fictitious as well, but at least your holdings in those companies are:
[+] [-] Bartweiss|8 years ago|reply
Private valuations combine "assessing value" with "striking a deal". I don't think it makes much sense to treat them as real numbers when it's possible for people to say things like "we don't want a down round later, value us at 20% less than that".
[+] [-] rahimnathwani|8 years ago|reply
Whilst it may be technically true, it's not useful to employees granted common shares. You might naively think you should haircut the value of your stock by 50% to get a fair valuation. But that's not true. Depending on the exit/IPO valuation, a liquidation preference could reduce the amount paid to common shareholders by anything from zero to 100% (i.e. infinite overvaluation of common equity).
> The study said Uber’s valuation of $69 billion is only 12 percent higher than the fair value approximation.
Yes, if a company's valuation goes up significantly between rounds, then the liquidation preferences (which are a form of downside protection) will have less (or perhaps) zero effect.
[+] [-] cubano|8 years ago|reply
The study found that it can exaggerate a company’s valuation by as much as 94 percent.
Ratchets can inflate a startup’s value by 56 percent or more, the study said.
etc.
Many if not all of these "techniques" sure sound old school to me.
[+] [-] JMCQ87|8 years ago|reply
[+] [-] mikekij|8 years ago|reply
[+] [-] api|8 years ago|reply
Tl;dr on this article is that a private valuation is more than a number. The whole picture must be considered. A high valuation with onerous terms might be "lower" than a lower valuation with reasonable or especially favorable terms.
One thing I don't get is: isn't a lower valuation on good terms better for founders? Why are founders playing the unicorn game at all?
[+] [-] ThrustVectoring|8 years ago|reply
[+] [-] smogcutter|8 years ago|reply
[+] [-] frgtpsswrdlame|8 years ago|reply
[+] [-] cal5k|8 years ago|reply