Category: valuation
September 1, 2015 Inc.com : Yes It’s a Tech Bubble. Here’s What You Need to Know
"I define a bubble as something where assets have prices that cannot be justified with any reasonable assumption," says Jay Ritter, a professor of finance at the University of Florida's Warrington College of Business Administration who studies valuation and IPOs. While definitions of reasonable assumption vary, historically bubbles have occurred when, in an economic sector's development, the last money in is highly unlikely to realize a return that justifies the risk it has taken. How do you know when that moment has arrived? It's when those billion-dollar unicorns, as they're known among venture capitalists, begin to insist that their ultrahigh growth rates should not be subjected to conventional P/E-based valuation analysis. (Not that they could be, anyway, since their earnings are almost always a closely guarded secret.) (read more…)
June 8, 2015 Chris Dixon from A16z : Performance Data and the ‘Babe Ruth’ Effect in Venture Capital
“How to hit home runs: I swing as hard as I can, and I try to swing right through the ball… The harder you grip the bat, the more you can swing it through the ball, and the farther the ball will go. I swing big, with everything I’ve got. I hit big or I miss big.” –Babe Ruth One of the hardest concepts to internalize for those new to VC is what is known as the “Babe Ruth effect” (read more…)
CATEGORY: valuation, VC, winner take all
April 14, 2015 Saints Capital : A Guide to Secondary Transactions: Alternative Paths to Liquidity in Private Companies
The sale of private company shares on the secondary market is becoming increasingly prevalent as the timeline to reach a liquidity event has lengthened over the last decade. In order to proactively manage secondary transactions, the boards, management teams, and investors of these companies need to be aware of the relevant issues, challenges and considerations. (read more…)
CATEGORY: capital, secondaries, valuation
October 29, 2014 Business Insider : Why Selling A Startup For $20 Million Can Be Better Than Selling It For $200 Million
"My advice is you shouldn't do a startup for financial reasons," he wrote via email. "Most startups fail and there are easier ways to make money with less risk...And if a company is successful, which is very hard to achieve, the money comes whether you build a fat company or a lean one. Mike [Arrington] and Arianna [Huffington] both did great financially. So did Mark Zuckerberg and Kevin Systrom. How many yachts can you water ski behind?" (read more…)
CATEGORY: bootstrap, leadership, valuation
January 29, 2002 Credit Suisse First Boston : The Babe Ruth Effect: Frequency vs. Magnitude
The portfolio manager found himself in an unusual position. While his total portfolio performance was among the best in the group, he was among the worst based on this batting average. After having fired all of the other “poor” performing managers, the treasurer called a meeting with this portfolio manager to sort out the divergence between the good performance and the “bad” batting average. The portfolio manager’s explanation for the discrepancy underscores a lesson inherent in any probabilistic exercise: the frequency of correctness does not matter; it is the magnitude of correctness that matters. Say that you own four stocks, and that three of the stocks go down a bit but the fourth rises substantially. The portfolio will perform well even as the majority of the stocks decline (read more…)
CATEGORY: valuation, VC, winner take all