The Valuation Math Scares Me, Too

money

Social sites are the darling of the VC world at the moment, but a lot of people in the business are wondering about the scary valuation math. Again. Techcrunch’s coverage of Yelp’s latest and fourth – yes fourth – round of financing lured a tone of skepticism from nearly all who commented on the post. After two years and $31mm invested, the still unprofitable Yelp! is valued at $200mm. Come again? A figure twenty times the undisclosed-but-rumored-to-be sub $10mm annual revenue mark.

One of the best things that came out of the bust to my mind was that the industry learned to stop confusing eyeballs with valuation. Or has it?

Remember the documentary startup.com? Internet entrepreneur is introduced by his press agent to a Rockerfeller at an event. The intro line includes, “and he’s raised over $60mm in seed capital for his venture.” To which the Rockerfeller responds, “Yeah, but does he know how to make money?”

A great idea is a great idea. The ability to develop a large audience is an impressive thing. Running a profitable business is an altogether different beast. I was hoping the near-death experience many of us went through back when would have shaken some sense into people in charge of the valuation math. We’ll see …

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