Sunday, February 19, 2012

Valuation Madness Again

I still haven't met anyone who says Facebook's valuation is sensible or anyone who actually says they will buy some shares. When companies like this normally go public everyone rushes to buy shares. I suspect a lot of people will but won't admit it for some reason. (Update - just done a vote and 83% say No)

But Facebook's valuation is worrying. Its making lots of other companies valuations go up relative to them. I have spoken to a few people recently and their current fund raising round valuation seem inflated.

Of course the value of a company when it is trading with revenue and profits is reasonably straight forward under a set of calculations. However valuing a start up with just an idea and no  track record is plain finger in the air. I should know I've been on both sides of the negotiation many times. Generally its the old adage of what someone will pay for it. And that comes down to gut feel and fair negotiation (not Dragons Den negotiation)

Is it my imagination or have we gone back a over a decade and forgotten nothing that went on in the boom and bust internet crash of 2000? Valuations then were crazy, money was being thrown at some of the most ridiculous companies and business models it makes made me sigh in disbelief.

However, maybe the Facebook IPO will actually make this more sustainable than a decade ago. Think of all the millionaires Facebook is going to create.A lot of them will go onto to create their own startups and a lot will invest back into tech startups. Thats a lot of cash flushing around and hence companies will probably be able to stand the high valuation.

I still think its mad.

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