Startups & VC funds have been caught in a limbo period where private valuation marks seem disconnected from public comps, but this is starting to unravel. Is the great recalibration finally upon us?
Oct 30, 2023·edited Oct 30, 2023Liked by Janelle Teng
Great post. Remember that a small part of the paradox at least is explained by the fact that those later-stage private investors were buying preferred stock with small to potentially large preferences that can make the "valuations" non-comparable. That is, just because I spent to $100M to buy 10% of a company with a 2x liquidation preference doesn't mean the company's "worth" $1B pre-money. This problem is, in part, due to the fact that Sand Hill Road loves to multiple the preferred price by the total of common and preferred shares to arrive at these headline valuations. That doesn't explain everything, and I do very much agree this problem exists. But part of it, at least, is not that paradoxical.
Charlie Munger says to buy great businesses at a good price and not to buy good businesses at a great price. The reverse is true when selling equity. Be raising capital in a great business and at a good price and not the other way around.
Great post. Remember that a small part of the paradox at least is explained by the fact that those later-stage private investors were buying preferred stock with small to potentially large preferences that can make the "valuations" non-comparable. That is, just because I spent to $100M to buy 10% of a company with a 2x liquidation preference doesn't mean the company's "worth" $1B pre-money. This problem is, in part, due to the fact that Sand Hill Road loves to multiple the preferred price by the total of common and preferred shares to arrive at these headline valuations. That doesn't explain everything, and I do very much agree this problem exists. But part of it, at least, is not that paradoxical.
100%, great point.
Charlie Munger says to buy great businesses at a good price and not to buy good businesses at a great price. The reverse is true when selling equity. Be raising capital in a great business and at a good price and not the other way around.