Over the past several months I have helped a few start-ups put together revenue models to help them raise money and prepare to go live in market. I’ve tried to ground the optimists with market valuation comparisons and have tried to push the conservatives with the same in market comparisons. There is always the tension of wanting to value the company really really high, but at the same time understand that the natural law of VC investing physics need to be considered. At the end of the day, the only true valuation is the one where someone pays for it (acquisition or IPO).
Today TheStreet’s Debra Borchardt posted this Forbes article that from a back of envelope calculation, Pinterest is worth $7.7Bn. The article lays out the comparison of Instagram’s $1bn and LinkedIn’s $10Bn market cap, triangulates that with traffic, time spent, demographics and WholeFoods successful case study, and boom out comes $7.7bn. However, she did note that a valuation done by Worth of Web estimated Pinterest at $267M, and based on the consistent undervaluing of Worth of Web methodology to Yelp, the real number based on that methodology should be more like $3.4Bn.
Fascinated by all the numbers thrown about? Me too.
Are any of these numbers right? Probably.
Why are the numbers so different? The balance between the speculation and execution. Speculation because some people see the big audience posted by Pinterest and sees it as an inevitable trove that will be monetized – and all else being equal it is worth what others have been willing to believe on Instagram and LinkedIn (that’s like meta valuation – valuations based on valuations based on valuations from investors valuating on something similar but not exactly). Execution is more about what have marketers in particular been willing to pay for this audience on a per CPM, time spent, CTR, affiliate lead gen, etc. Hence, if the company can execute at market average with their audience, their valuation is more based on the spending market (that’s like more of a chop chop shop valuation of how much are all the parts if we sold it off piece by piece).
For all the start ups out there – it’s helpful to get both numbers the speculative meta valuation and the execution based chop chop valuation. Sometimes they are far apart, sometimes they are close and sometimes the pieces are worth more than the whole.