Startup Valuation Quotes

When the editors at Forbes saw the Fortune article, they immediately assigned reporters to confirm the company’s valuation and the size of Elizabeth’s ownership stake and ran a story about her in their next issue.

The concept is that you don’t want or need to start an entirely new religion to build a startup society, but you do need a moral innovation of some kind. If all you have to offer is a higher standard of living, people may come as consumers, but they won’t come for the right reasons. The consumer-citizen is coming to enjoy a great society, not to sacrifice to make a society great. They won’t understand the values that underpin your startup society’s valuation. And you likely won’t be able to build that high valuation or higher standard of living without a higher purpose, just as neither Apple nor America itself was initially built for money alone. You want to recruit producers, not consumers, and for that, you’ll need a purpose.

Everywhere you look with this young lady, there’s a purity of motivation,” Shultz told him. “I mean she really is trying to make the world better, and this is her way of doing it.” Mattis went out of his way to praise her integrity. “She has probably one of the most mature and well-honed sense of ethics—personal ethics, managerial ethics, business ethics, medical ethics that I’ve ever heard articulated,” the retired general gushed. Parloff didn’t end up using those quotes in his article, but the ringing endorsements he heard in interview after interview from the luminaries on Theranos’s board gave him confidence that Elizabeth was the real deal. He also liked to think of himself as a pretty good judge of character. After all, he’d dealt with his share of dishonest people over the years, having worked in a prison during law school and later writing at length about such fraudsters as the carpet-cleaning entrepreneur Barry Minkow and the lawyer Marc Dreier, both of whom went to prison for masterminding Ponzi schemes. Sure, Elizabeth had a secretive streak when it came to discussing certain specifics about her company, but he found her for the most part to be genuine and sincere. Since his angle was no longer the patent case, he didn’t bother to reach out to the Fuiszes. — WHEN PARLOFF’S COVER STORY was published in the June 12, 2014, issue of Fortune, it vaulted Elizabeth to instant stardom. Her Journal interview had gotten some notice and there had also been a piece in Wired, but there was nothing like a magazine cover to grab people’s attention. Especially when that cover featured an attractive young woman wearing a black turtleneck, dark mascara around her piercing blue eyes, and bright red lipstick next to the catchy headline “THIS CEO IS OUT FOR BLOOD.” The story disclosed Theranos’s valuation for the first time as well as the fact that Elizabeth owned more than half of the company. There was also the now-familiar comparison to Steve Jobs and Bill Gates. This time it came not from George Shultz but from her old Stanford professor Channing Robertson. (Had Parloff read Robertson’s testimony in the Fuisz trial, he would have learned that Theranos was paying him $500,000 a year, ostensibly as a consultant.) Parloff also included a passage about Elizabeth’s phobia of needles—a detail that would be repeated over and over in the ensuing flurry of coverage his story unleashed and become central to her myth. When the editors at Forbes saw the Fortune article, they immediately assigned reporters to confirm the company’s valuation and the size of Elizabeth’s ownership stake and ran a story about her in their next issue. Under the headline “Bloody Amazing,” the article pronounced her “the youngest woman to become a self-made billionaire.” Two months later, she graced one of the covers of the magazine’s annual Forbes 400 issue on the richest people in America. More fawning stories followed in USA Today, Inc., Fast Company, and Glamour, along with segments on NPR, Fox Business, CNBC, CNN, and CBS News. With the explosion of media coverage came invitations to numerous conferences and a cascade of accolades. Elizabeth became the youngest person to win the Horatio Alger Award. Time magazine named her one of the one hundred most influential people in the world. President Obama appointed her a U.S. ambassador for global entrepreneurship, and Harvard Medical School invited her to join its prestigious board of fellows.

There are no exact formulas for determining early-stage valuations.

A lot of us asked why we weren't pricing it at a premium. We could have got a premium but Deepak said, "leave money on the table for investors. They will appreciate this in the long term." Today, when we have arguments with our promoters, one of the big lessons I learnt from our float is to price an IPO cheap,' Luis said. 'Should we really scalp the shareholders? This is a start-up company. On what basis are we putting valuations? Today they will put a valuation even on a start-up idea,' Satwalekar was blunt in his assessment.

Third, the idea that venture capitalists get into deals on the strength of their brands can be exaggerated. A deal seen by a partner at Sequoia will also be seen by rivals at other firms: in a fragmented cottage industry, there is no lack of competition. Often, winning the deal depends on skill as much as brand: it’s about understanding the business model well enough to impress the entrepreneur; it’s about judging what valuation might be reasonable. One careful tally concluded that new or emerging venture partnerships capture around half the gains in the top deals, and there are myriad examples of famous VCs having a chance to invest and then flubbing it.[6] Andreessen Horowitz passed on Uber. Its brand could not save it. Peter Thiel was an early investor in Stripe. He lacked the conviction to invest as much as Sequoia. As to the idea that branded venture partnerships have the “privilege” of participating in supposedly less risky late-stage investment rounds, this depends from deal to deal. A unicorn’s momentum usually translates into an extremely high price for its shares. In the cases of Uber and especially WeWork, some late-stage investors lost millions. Fourth, the anti-skill thesis underplays venture capitalists’ contributions to portfolio companies. Admittedly, these contributions can be difficult to pin down. Starting with Arthur Rock, who chaired the board of Intel for thirty-three years, most venture capitalists have avoided the limelight. They are the coaches, not the athletes. But this book has excavated multiple cases in which VC coaching made all the difference. Don Valentine rescued Atari and then Cisco from chaos. Peter Barris of NEA saw how UUNET could become the new GE Information Services. John Doerr persuaded the Googlers to work with Eric Schmidt. Ben Horowitz steered Nicira and Okta through their formative moments. To be sure, stories of venture capitalists guiding portfolio companies may exaggerate VCs’ importance: in at least some of these cases, the founders might have solved their own problems without advice from their investors. But quantitative research suggests that venture capitalists do make a positive impact: studies repeatedly find that startups backed by high-quality VCs are more likely to succeed than others.[7] A quirky contribution to this literature looks at what happens when airline routes make it easier for a venture capitalist to visit a startup. When the trip becomes simpler, the startup performs better.[8]

The criteria that I found most valuable when making my decisions were the following: What is the size of the investor community invested in other offerings on the platform to-date? Does the platform accept investments via credit card? For example, about 40% of my crowdfunding investors invested with a credit card. Does the platform allow for campaign extensions (if you fall short of your goal within your campaign period, can you extend the campaign until you reach your goal)? I’ve extended my campaigns multiple times. Does the platform allow for multiple disbursements? I prefer to disburse money from my campaign once a month. However, many platforms don’t allow you to disburse the funds until after the campaign is over What are the fees? Platforms can charge between 5-20% of your raise as fees, with some platforms having complicated fee structures that involve taking some of your Securities as part of the offering. Some platforms require you to pay them cash upfront before launching an offering. Does the platform allow you to set your own terms? For example, some platforms don’t allow you to sell convertible notes. Some others don’t allow you to sell non-voting common stock. Some platforms insist that they set the valuation for your startup in order to launch—the logic being that they know their investors, and they want to provide them with a “good deal.” For many reasons, you want to sell the Security that’s right for your startup. Does the platform allow you to have design freedom on the campaign page? You want to make sure that your brand is well represented. The aesthetics and optimization of the page are highly correlated with conversion (how many people invest after visiting your page). Does the platform support analytics? You need advanced analytics to market your offering. Some platforms, for example, allow you to enter a Facebook Pixel and Google Analytics code into the campaign page, while others do not. Does the platform have a good reputation? You will be driving a lot of potential investors and media folks to this platform, and you want to be sure that your platform of choice hasn’t been involved in anything shady in the past. Does the platform allow you to update your investors and prospective investors with campaign notifications? Some platforms have a built-in functionality where you can post updates right on the campaign, download email, and mailing contact lists of your investors (allowing you to contact them by email and allowing you to build Facebook “lookalike audiences”). Whereas, other platforms don’t even share the email addresses of the folks who have already invested in your startup. Does the platform support or plan to support secondary trading for the Securities that it sells on its platform? Will your investors be able to sell the Securities that they buy from you? The ability to sell Securities in a marketplace brings a lot of liquidity and increases its value significantly. In order to allow for secondary trading, the platform needs to obtain an Alternative Trading System (ATS) approval from FINRA.

This is the Rocketship Growth Rate—the precise pace at which a startup must grow to break out. How do you calculate this rate of growth? First, by setting a goal of exceeding a billion dollars of valuation—thus being in a position to achieve an IPO—and working backward.

We are now seeing angels outsourcing due diligence to entities they assume will do it better. In one case, the entity is Y Combinator, the elite accelerator. Yuri Milner’s DST Fund and Ron Conway’s SV Angel fund recently announced that they will invest in every single startup coming out of Y Combinator. The seed rounds will provide $150,000 to every single one of the 40 startups that wants it, without any due diligence on their own part whatsoever. The capital is in the form of convertible debt with no cap and no discount. The loan will convert when and if the startup raises a proper angel or VC capital round at the same valuation that’s set in the round. Most convertible debt has a valuation ceiling and also gets a discount on conversion. The angels are banking on the premise that Y Combinator, in vetting the startups it stewards, has performed satisfactory due diligence. Milner has effectively shut out any other angel investors by offering such attractive terms. It’s almost free money. I’d be surprised if any of the 40 startups in each Y Combinator class decline such an offer.

His biggest hit so far is making the first investment in Pinterest, the popular social network used to share photos, organized as collections of pictures on a pin board. Launched in March 2010, it has become one of the most visited sites, with 23 million users in 2012 and a valuation of over $1.5 billion. Pinterest was founded in Palo Alto, Silicon Valley, by three youngsters under 30. “I helped them start and guided them as a mentor to become what they are,” says Cohen. “With this single investment I’m done. As soon as I get my liquidity event I will party like there’s no tomorrow.” All the angels dream of “the big hit,” says Cohen, who has written a book on the subject.[24] They are the ones providing 90% of startup capital, by writing checks out of their own pocket. But they don't do it just thinking of financial returns. “I think we do it because it’s fun. There’s no question that everyone thinks he or she is smarter than everyone else,” the Chairman of the New York Angels says half-jokingly. “In reality no one makes money, although some are luckier and hit the jackpot. Then there is the fashion factor. Everyone today wants to be an angel because it is cool. In other words, we are the prima donnas; we have a big ego. But there is also the idea of doing good, to have the satisfaction of helping start new emerging companies.” The pleasure of giving back: an important part of Jewish culture, and of American culture in general.

On March 31, 2016, Securities and Exchange Commission chair Mary Jo White said this to the students of Stanford Law School: Nearly all venture valuations are highly subjective. But, one must wonder whether the publicity and pressure to achieve the unicorn benchmark is analogous to that felt by public companies to meet projections they make to the market with the attendant risk of financial reporting problems. And, yes that remains a problem. We continue to see instances of public companies and their senior executives manipulating their accounting to meet various expectations and projections.1 We have reached a point in the world of technology startups where the fervor for building a company with a billion-dollar valuation — the elusive startup unicorn — is overshadowing the creation of real value. It is not the first time we have been here; the world of startups and venture capital has always run in cycles, from optimistic zeal to caution to post-catastrophe introspection and back again. But perhaps it is time that entrepreneurs and investors alike begin waking up to the fact that the “valuation-at-all-costs” model, with its relentless pressure, remote odds of success, and human cost, is not only unsustainable but bad business. At this point in the current cycle, the radically overvalued startup appears to be headed for the endangered species list. That is a good thing. While billion-dollar behemoths will always exist, and the high-wire act of chasing scale while also chasing the cash to fund that scale will occasionally produce a solid company, there are other ways to build a business. There are better ways to build a business.

Persson did not create Minecraft because he wanted to create a billion-dollar company; he loved video games and kept his day job while developing it. When the game soared in popularity, he started a company, Mojang, with some of the profits, but kept it small, with just 12 employees. Even with zero dollars spent on marketing and no user instructions, Minecraft grew exponentially, flying past the 100 million registered user mark in 2014 based largely on word of mouth.2 Players shared user-generated extras like modifications (“mods”) and custom maps with each other, and the game caught on not only with children but their parents and even educators. Still, Persson avoided the valuation game, refusing an investment offer from former Facebook president Sean Parker. Finally, he and his co-founders sold Mojang to Microsoft for $2.5 billion, a fortune built on one man’s focus on creating something that people loved.3 On the other end of the spectrum is Zynga, one of the fastest startups ever to reach a $1 billion valuation.4 The social game developer had its first hit in 2009 with FarmVille. Next came Zynga’s partnership with Facebook that turned into a growth engine. The company began trading on the NASDAQ in December 2011 and had 253 million active users per month as late as the first quarter of 2013.5 Then the relationship with Facebook ended and the wheels started coming off. Flush with IPO cash, Zynga started exhibiting all the symptoms of ego-driven, grow-at-any-cost syndrome. They moved into a $228 million headquarters in San Francisco. They began hastily acquiring companies like NaturalMotion, Newtoy, and Area/Code. They infuriated customers by launching new games without sufficient testing and filling them with scripts that signed players up for unwanted subscriptions and services. When customer outrage went viral, instead of focusing on building better products, Zynga hired a behavioral psychologist to try to trick customers into loving its games.6 In a 2009 speech at Startup@Berkeley, CEO Mark Pincus said, “I funded [Zynga] myself but I did every horrible thing in the book to just get revenues right away. I mean, we gave our users poker chips if they downloaded this Zwinky toolbar, which . . . I downloaded it once — I couldn’t get rid of it. We did anything possible just to just get revenues so that we could grow and be a real business.”7 By the spring of 2016, Zynga had laid off about 18 percent of its workforce and its share price had declined from $14.50 in 2012 to about $2.50.

Driving the move is a focus by Beijing on the Internet and innovation-driven sectors to boost slowing growth by easing listing rules. Another factor is a stock rally that has seen the Shanghai Composite Index climb 43% this year, although it fell 6.5% on Thursday. Meanwhile, Chinese investors are pouring money into funds that target startups. In 2014, 39 angel investment funds were set up in China, raising $1.07 billion, a 143% increase from the previous high in 2012, according to investment database pedata.cn, which is run by Zero2IPO Research in Beijing. Angel investors typically provide personal funds to finance small startups. High valuations and the loosening of listing rules will draw more Chinese companies to their home market, said Jianbin Gao of PricewaterhouseCoopers in China. “We anticipate significant growth in technology listings on domestic exchanges,” he said.

Groupon is a study of the hazards of pursuing scale and valuation at all costs. In 2010, Forbes called it the “fastest growing company ever” after its founders raised $135 million in funding, giving Groupon a valuation of more than $1 billion after just 17 months.5 The company turned down a $6 billion acquisition offer from Google and went public in 2011 with one of the biggest IPOs since Google’s in 2004.6 It was one of the original unicorns. However, the business model had serious problems. Groupon sometimes sold so many Daily Deals that participating businesses were overwhelmed . . . even crippled. Other businesses accused Groupon of strong-arming them to sign up for Daily Deals. Customers started to view the group discount (the company’s bread and butter) as a sign that a participating business was desperate. Businesses stopped signing up. Journalists suggested that Groupon was prioritizing customer acquisition over retention — growth over value — and that it had gone public before it had a solid, proven business model.7 Groupon is still a player, with just over $3 billion in annual revenue in 2015. But its stock has fallen from $26 a share to about $4 today, and it has withdrawn from many international markets. Also revealing is that the company is suing IBM for patent infringement, something that will not create customer value.8 Many promising startups have paid the price for rushing to scale. We can see clues to potential future failures in the recent “down rounds” (stock purchases priced at a lower valuation than those of previous investors) hitting companies like Foursquare, Gilt Group, Jet, Jawbone, and Technorati. In their rush to build scale, executives and founders search for shortcuts to sustainable, long-term revenue growth.

On February 16, 2000, the Wall Street Journal ran a story lauding our viral growth and suggesting that PayPal was worth $500 million. When we raised $100 million the next month, our lead investor took the Journal’s back-of-the-envelope valuation as authoritative. (Other investors were in even more of a hurry. A South Korean firm wired us $5 million without first negotiating a deal or signing any documents. When I tried to return the money, they wouldn’t tell me where to send it.)

This is the Rocketship Growth Rate—the precise pace at which a startup must grow to break out. How do you calculate this rate of growth? First, by setting a goal of exceeding a billion dollars of valuation—thus being in a position to achieve an IPO—and working backward. Hitting a $1 billion valuation generally requires at least $100 million in top-line recurring revenue annually, based on the rough market multiple of 10x revenue. You’d want to hit that in 7–10 years, to sustain the engagement of the key employees and also reward investors who often work in decade-long time cycles. These two goals—revenue and time—work together to create an overall constraint. Neeraj Agarwal, a venture capitalist and investor in B2B companies, first calculated this growth rate by arguing that SaaS companies in particular need to follow a precise path to reach these numbers:64 Establish great product-market fit Get to $2 million in ARR (annual recurring revenue) Triple to $6 million in ARR Triple to $18 million Double to $36 million Double to $72 million Double to $144 million SaaS companies like Marketo, Netsuite, Workday, Salesforce, Zendesk, and others have all roughly followed this curve. And the rough timing makes sense. The first phase, in which the team initially gets to product/market fit, takes 1–3 years. Add on the time to reach the rest of the growth milestones, and the entire process might take 6–9 years. Of course, after year 10, the company might still be growing quickly, though it’s more common for it to be growing 50 percent annualized rather than doubling. The argument is that products with network effects both can see higher growth rates as they tap into the various network forces I’ve discussed, and can compound these growth rates for a longer period of time—and looking at the data, I think that’s generally true.

During the best of times, Silicon Valley brimmed with opportunity. It seemed that every kid with a laptop and a hoodie could slap the dotcom suffix on the end of almost anything—stamps.com, shoes.com, drugstore.com, webvan.com, eToys.com, garden.com—and become a millionaire overnight. Venture capitalists poured money into these companies, and their valuations soared. But there’s no piece of music in which the crescendo doesn’t eventually crash. Most people can’t recognize when they’re in a bubble—or they don’t want to recognize it. Markets and industries are cyclical by nature. During periods of significant innovation, bubbles form because expectations grow faster than reality, and hope gets too far out in front of a future that doesn’t currently exist. The problem was that the structures, timing, and valuations of these startups were all dependent upon assumed growth and the execution of ambitious business plans, and those assumptions and executions often weren’t reasonable or achievable.

CrowdSmart, which Polese cofounded in 2015, uses “human-powered AI” to help investors choose which young companies to bankroll. In 2016, to test its platform, CrowdSmart raised a small fund and invested in nearly thirty start-ups that its algorithm had rated highly. Within eighteen months, 80 percent of the companies went on to attract outside follow-up funding at an increased valuation—a substantially better result than most venture funds achieve, Polese says—and 40 percent were founded or led by women. That’s what happens

CrowdSmart, which Polese cofounded in 2015, uses “human-powered AI” to help investors choose which young companies to bankroll. In 2016, to test its platform, CrowdSmart raised a small fund and invested in nearly thirty start-ups that its algorithm had rated highly. Within eighteen months, 80 percent of the companies went on to attract outside follow-up funding at an increased valuation—a substantially better result than most venture funds achieve, Polese says—and 40 percent were founded or led by women. That’s what happens when you de-bias the process.

The stakes were high. If Uber was unable to operate freely in America’s most important financial and cultural center, it was almost a precedent for legislators all over the world to shut us down. We were fucked without New York—there was no way to justify Uber’s high valuation, its investors’ lofty expectations, and its promises of changing the way people get around if we couldn’t freely operate in the world’s most visible city.

Since Bush was going to say yes to anything at that moment, luckily for New York, Chuck’s natural aggressiveness meant he could ask for what seemed like an astronomical sum (at the time) with a straight face. This ended up being a really useful lesson: Always ask for as much as you can. That’s true whether you’re trying to help New York City recover from a terrorist attack or negotiating your salary for a new job, or if you’re a startup founder negotiating your company’s valuation with venture capitalists. The worst that happens is they say no and you retreat. But more often than you’d think, they say yes. The less shame you have, the better.

existe el denominado AVM (Automated Valuation Model) o en otras palabras la tasación automática, que permite conocer la información de mercado de cualquier inmueble, sea cual sea su naturaleza, además de todos los datos y proyecciones socioeconómicas y demográficas. Como explica brevemente Jorge Valero, anterior Managing Director en Tinsa Digital,26 empresa especialista en big data inmobiliario:

Purpose is what drives entrepreneurship, not valuation or traction.

A true entrepreneur is not concerned with valuation or traction, but rather with following their purpose, innovating, and making a positive contribution to the world.

The lawsuit was also a major distraction to Evan, Bobby, and Snapchat, during a time when they needed to focus more than ever. Finally, they reached a settlement. Reggie would receive $ 157.5 million and sign a gag order to never speak about Snapchat, the founding, or the lawsuit. Snapchat would acknowledge Reggie’s contributions to the company. Like Facebook’s multiple lawsuits with the Winklevoss twins and Eduardo Saverin, it’s difficult to neatly arrange the characters into winner and loser columns. Reggie Brown likely could not have built Snapchat into the multibillion-dollar company it is today. But he did not simply toss an idea out there for anyone to take—he recruited Evan, the best person he knew for the task, to join him and start the company. So what is fair for each side to receive? Snapchat’s valuation soared so high and so quickly during the lawsuit that it was hard for each side to wrap their heads around it, let alone arbitrate what each side deserved. This question isn’t going away. The Social Network, featuring courtroom scene after courtroom scene of friends hurling accusations at each other through expensive lawyers, spurred scores of young college students to pursue startups. Evan’s massive success with Snapchat has only increased the startup fervor on Stanford’s campus. And Reggie’s lawyers’ firm, Lee Tran & Liang, has become the hot law firm for ousted startup cofounders to sue young tech companies.

It’s worth noting that so many of the goals that companies put forward tend to be arbitrary or overly ambitious. Especially in the start-up world, the drive for billion-dollar valuations is not an indicator of a healthy company that is built to last. It is a standard that has evolved thanks to the venture capital industry (because valuations are how they make their money). A strong culture and the ability to fund its own existence (also known as profitability) is how a company actually stays in the game for the long term.

For example, consider how Paul Graham explained Yahoo’s valuation in 1999: By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the internet. One reason they were excited was Yahoo’s revenue growth. So they invested in new internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of “Eureka!” I was shouting “Sell!” 146

But the questions not asked screamed out the loudest. Nobody brought up inflated tech valuations or risk management. Nobody seemed concerned about the tenuous economics of ridesharing. SoftBank’s $4.4 billion WeWork deal was the largest slug of capital ever committed to a start-up, but nobody asked what WeWork had to do with technology. Because nobody asks tough questions in a bull market.