I sometimes wish that VCs had some legal responsibility when blogging about their portfolio companies too, specially when discussing valuations. They keep cheerleading on a clear conflict of interest, non-stop. Here is Fred Wilson:
"Pandora is at ~$1.5bn. LinkedIn is at ~$6bn. Groupon is at ~$15bn, Zynga is at ~$7bn, and TripAdvisor is at ~$3.5bn.
We can (and surely will in the comments) argue about these valuations. Some will say they are too high. Some will say they are too low. That's what makes a market. But in the aggregate, these valuations do not seem ridiculous to me. The public market investors are valuing these companies at prices that have some rationality to them."
Source: http://www.avc.com/a_vc/2011/12/some-thoughts-on-the-ipo-mar...
When he says "...these valuations do not seem ridiculous to me." he is implicitly saying that their is (fundamental value) upside to the stock. Not in a million years could Fred Wilson sustain such argument with numbers. Implied growth rates just to value Zynga at ~$7bn means double digit growth (revenue and cash flow) for years, AND even higher growth rates are required if IPO investors want a return on their investment. Unfortunately his audience buys into the hype, regardless of the real economic value behind the companies, and for him to keep doing this on a clear conflict of interest demonstrates his low moral standards. These actions should not go unpunished, and are no different to any other legal "issues" that lawyers might pick up from the Zynga prospectus.
" They keep cheerleading on a clear conflict of interest, non-stop"
That's their business model: they buy and then pump the companies in hopes that someone will buy stake from them at a higher valuation later. The nature of the VC model precludes multi-decade investments and incentivizes quick exits even if they blow up in others' faces
that is exactly correct. VC's are facilitators, middlemen, and wholesalers, they are not equity holders. Their goal is to move equity. If the 'end-user' of the equity ends up owning a great business, great, if not, makes no difference to the VCs. You could argue there's reputation risk at stake but I don't see it: Fred Wilson made his name with geocities, a company that never earned any dividends for its ultimate owners (yahoo) while generating huge returns for its equity resellers. And we celebrate him and that deal as a success. Finding the greatest sucker is not a sustainable strategy, it's simple wealth transfer, no value gets created. it's not a way forward.
It's true that VCs have moved a lot of eventually worthless equity but they've also moved a lot of really valuable equity. Google, Amazon, Genentech, Oracle, etc. are companies with real, fundamental long-term value which could not have existed without some kind of investor (whether you call it a "VC" is largely semantic).
"Pandora is at ~$1.5bn. LinkedIn is at ~$6bn. Groupon is at ~$15bn, Zynga is at ~$7bn, and TripAdvisor is at ~$3.5bn.
We can (and surely will in the comments) argue about these valuations. Some will say they are too high. Some will say they are too low. That's what makes a market. But in the aggregate, these valuations do not seem ridiculous to me. The public market investors are valuing these companies at prices that have some rationality to them." Source: http://www.avc.com/a_vc/2011/12/some-thoughts-on-the-ipo-mar...
When he says "...these valuations do not seem ridiculous to me." he is implicitly saying that their is (fundamental value) upside to the stock. Not in a million years could Fred Wilson sustain such argument with numbers. Implied growth rates just to value Zynga at ~$7bn means double digit growth (revenue and cash flow) for years, AND even higher growth rates are required if IPO investors want a return on their investment. Unfortunately his audience buys into the hype, regardless of the real economic value behind the companies, and for him to keep doing this on a clear conflict of interest demonstrates his low moral standards. These actions should not go unpunished, and are no different to any other legal "issues" that lawyers might pick up from the Zynga prospectus.