THE DREAM IN ACTION

Thus my comment, "I respect your skepticism." :)

Startup valuations are by their very nature skeptical. Most web technology startups are extremely difficult to value because nothing like them has ever been done before. These valuations are based on nothing more than what a few seed investors believe them to be worth. There is no such things as market comparables or cash flow to base value. Sure, you can estimate market value based on what others have invested for pieces of the business (ex seed funding). But these investments are extremely high risk, well above normal failure rates. Therefore, not very good indicators of long term expected value. You better be skeptical of startup valuations.

Trust me, these startups are contemplating revenue model opportunities from day 1. It's rarely public however, and this privacy of plan strategy significantly benefits them from a competition perspective. Publicizing their rev plan may benefit some startups in this way: As an example, if twitter plans to charge for use of it's API (which I doubt they do) then they should be clear with that up front so that they don't piss off thousands of developers down the road. Don't lock people in then turn on the "you have to pay us now" switch, that could be dangerous.

I'm personally skeptical only when the revenue model has not been defined. I agree, the connections must be joined together tightly before turning on the water. But, many of these high valuation startups have not (at least publicly) defined what type of hose (rev model) they are going to use. Users x Great Revenue Model = High Valuation. I have a hard time swallowing a high valuation without a clear understanding of HOW they will make money.

Thanks boss.

Great analogy. I was a volunteer firefighter for a bit. You always lay your hose, check your connections AND be sure you're holding on tight, before letting the water go. When you don't, it's a disaster.

Thus my comment, "I respect your skepticism." :)

Startup valuations are by their very nature skeptical. Most web technology startups are extremely difficult to value because nothing like them has ever been done before. These valuations are based on nothing more than what a few seed investors believe them to be worth. There is no such things as market comparables or cash flow to base value. Sure, you can estimate market value based on what others have invested for pieces of the business (ex seed funding). But these investments are extremely high risk, well above normal failure rates. Therefore, not very good indicators of long term expected value. You better be skeptical of startup valuations.

Trust me, these startups are contemplating revenue model opportunities from day 1. It's rarely public however, and this privacy of plan strategy significantly benefits them from a competition perspective. Publicizing their rev plan may benefit some startups in this way: As an example, if twitter plans to charge for use of it's API (which I doubt they do) then they should be clear with that up front so that they don't piss off thousands of developers down the road. Don't lock people in then turn on the "you have to pay us now" switch, that could be dangerous.

I'm personally skeptical only when the revenue model has not been defined. I agree, the connections must be joined together tightly before turning on the water. But, many of these high valuation startups have not (at least publicly) defined what type of hose (rev model) they are going to use. Users x Great Revenue Model = High Valuation. I have a hard time swallowing a high valuation without a clear understanding of HOW they will make money.

Thanks boss.

Great analogy. I was a volunteer firefighter for a bit. You always lay your hose, check your connections AND be sure you're holding on tight, before letting the water go. When you don't, it's a disaster.