A million guys walk into a Silicon Valley bar. No one buys anything. bar declared a massive success.
8
Gee, I wonder if maybe Emperor Trumpelthinskin is actually worth less than $1 billion.
3
Do we need to bring back the P/E ratio as a meaningful metric for value estimates? Nah, hype is more lucrative to the junk unicorn
4
I work in the tech industry and I still don't understand how a website for posting pictures of kitsch is worth $12.3 billion. I understand the value of its networking and marketing potential, but come on.
6
"if a company doesn’t reach a certain valuation at the time of an I.P.O., it will issue the investor more shares to make up the difference"
Hey, no problem! I'm sure if I auctioned off my extensive collection of Koons balloon dogs, and the results were disappointing, Jeff would gladly blow up a few more for me, as long as I kept him on the guest-lists of all tomorrow's parties.
And speaking of balloon dogs...
1
Whether these inflated headlines valuations are “meant to mislead investors” or not, they should be disavowed by management if they’ do not reflect reality. That should be standard practice.
This is not rocket science.
1
It's about time someone wrote an article like this.
Spotify is a good example. The company has been valued at up to $16B despite losses of hundreds of millions of dollars every year. The bigger it gets, the bigger the losses. Last year's losses were about $600,000,000.
I can't believe that people have such tunnel vision that they only see the number of users and the amount of revenues coming in and are blind to operating costs.
The valuation seems to be based on how much money investors invest in the company rather than whether the company actually makes any money after all is said and done. But top investors have golden parachute exit strategies based on preferred stock and other financial incentives they were given to get them to invest in the first place.
It all seems geared to keep things afloat long enough to get to that big IPO windfall as opposed to building a sustainable business.
15
Does the word "bubble" ring any bells? Sooner rather than later we are going to have another market melt-down. Mark my words. There is no there there.
19
Oh, capitalism! Truth and transparency are just as prevalent as the horned horses of myth. An entire profession, public accounting, was invented to ensure that certain rules, even for the sneaky unethical private concerns, were observed in order to keep it all on the up-and-up. Yet the Big-Time CPAs have joined the chorus of hype in order to keep clients happy. Which brings to the last two lines of this article: if manipulation and trickery are not the endgame, then why the obfuscation? Even the rank elitism of Silicon Valley need not resort to such tactics.
14
Seems like just another con game at work.
10
This has been going on for decades. In my view of wealth creation in America capitalism is about overstating the value of corporations. Businesses appear to me to move through from six stages: (1) start-ups financed initially by the entrepreneurs themselves, (2) involvement of angel investors, (3) investments by venture capitalists, (4) the stage discussed in this article of private placements of equity, (5) the initial IPO, and (6) post-IPO valuation by stock analysts. At each stage the value is hyped to the next level of investors. Those who invest in the stock markets are at the end of a "food chain" where each bigger "fish" is gobbling up a smaller "fish" that has inflated its value.
20
I’ve long held the belief that high debt, overvaluation, bluster and bragging are essential to creating the impression of “wealth’.
11
This article reminds me of another article which pointed out that 5 billion of Trump's fortune of 10 billion was the value he put on the Trump name, which caused me to say "Oh, so he's worth 5.5 billion". I see the same delusion at tag sales where sellers put ridiculous prices on old junk because they think it is valuable. Part of this phenomenon is wishful thinking and part of it the psychologically fact that people over-value something because it is their's. But as my mother used to say "Wishing doesn't make it so". If you want to know what something is worth, try selling it.
18
my mother said the same thing. and she was correct.
7
A unicorn is a mythical creature. Investors can trick themselves into thinking whatever they want as it's their money to lose. But, there should be some protection for employees who take jobs or may take lesser pay in exchange for options in private company stock that turns out to be based on bogus valuations.
10
I believe the term is "caveat emptor," let the buyer beware. This was Goldman Sachs' justification for pushing unstable securities to customers that they were themselves getting rid of.
1