Feld Thoughts

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Why Gross Profit Is More Important Than Revenue

Feld Thoughts

This was before the IPO Summer of 2019 when all conventional valuation metrics have entered the land of “suspension of disbelief” which is short-term good and long-term well-we-will-see-…-eventually. We ended up talking about using Gross Profit, instead of Revenue, to do valuation analysis.

Revenue 179
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What Just Happened

Feld Thoughts

Its revenue grew by 30%+. Another company had a revenue decline of 25%. No one is going to raise a $100 billion VC fund and start spraying money around at fantastical valuations, followed by everyone else suspending disbelief and believing companies, regardless of their businesses, are worth 50x next year’s revenue.

Valuation 172
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The Great Coding School Rollup of 2015

Feld Thoughts

Companies were being bought (and valued) at 10x forward revenue only to be valued at between 0.5x revenue several years later. We were bought for a more reasonable 1x revenue (and about 4x pre-tax income) when the value of the AmeriData stock, options, and cash we took out were factored in. I’d argue the 0.5x

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The Trap of Relative Value

Feld Thoughts

He’d gotten a random note asking about his valuation when we invested relative to another financing that was just announced. The other company, which was much smaller at the point of investment, got an 11x ARR valuation. My response to the specific situation was: Valuations have increased on a relative basis.

Valuation 143
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A Venture Capital History Perspective From Jack Tankersley

Feld Thoughts

Not really; it was a result of an industry investing into a frothy market at higher and higher valuations in expectation of near term liquidity, and suddenly the IPO window shutting, leading to no exits and little additional capital to support these companies. By 1994 the big software wins of the 1980’s were already funded or public.”

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Q316 State of Venture Capital Update With Cooley

Feld Thoughts

The existential freakout that occurred in January and February seemed like the distant past with the lingering hangover being a clearer focus on valuation and overall funding needs from new investors. As far as deal terms, is the pendulum favoring companies or investors? For everything in between, good luck and be flexible.

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Unicorpse

Feld Thoughts

But a lot of these are paper unicorns, so their valuations may not be real for a while.” Last week Salesforce CEO Marc Benioff also predicted dead unicorns as startups seem to focus more on their valuations than their customers.” I once was on the board of a company that had generated lifetime revenue of $1.5m