CHAPTER 10
Now That You Understand Venture Capital Valuation, Share It
“Rising prices are a narcotic that affect the reasoning power up and down the line.… Isaac Newton participated in the South Sea bubble. Originally got out. And then he couldn't stand prices going up any longer and so he went back in and got cleaned. And this was a fellow who was generally regarded as being pretty bright.”
–From Warren Buffett's testimony in front of the Financial Crisis Inquiry Commission
If you read even the first chapter of this book, you've effectively transitioned from the 99.9% of decision makers involved in a venture-capital-backed company who are losing money because they don't understand valuation. As illustrated in our very first case of valuation issues—Facebook v. ConnectU—you don't always need complicated math to bridge the gap between different standards of value. All you need is to know that there is a difference in value standards, understand what the assumptions are for those standards, and then apply a little multiplication, division, or subtraction to figure out how one value indication compares to another. This can make valuations for venture-backed and angel-funded companies easier than they are for traditional private companies and public companies. Knowing the track records, strategic motivations, and exit horizons of the parties in control is also an advantage one has when turning value indications or clues for these companies into meaningful value conclusions.
In the ...
