The Price Tag

Since the ancient time of venture world, valuation a.k.a. the price tag has always been one of the key investment considerations for both the venture capitalists and entrepreneurs. Most of us get hyped up by the news of funding acquired by ventures around the world and the valuation that are signed on the term sheets.

Nutanix raises Series E on a valuation of $2 billion”
Square raises $100 million at $6 billion valuation”

So here is my first question – are these real valuation or simply just another bubble that is taking longer to burst (compared to the Dot Com crisis era). Blessed with the opportunity to hear from the lead venture capitalists from the States, it seems like most of the voices are suggesting that this is not a bubble, but there could be a correction in the near future (maybe very near). Now back in South East Asia, it does seems like nobody really cares whether this is a bubble or not. Everyone who has a regional play is still riding the wave of the inclining valuation. So here are my observations:

  1. No one wants this to be a bubble. If can, most people want to see prices going up.
  2. In our part of the world, we say we don’t care but we actually care when entrepreneurs come to us with a price tag that could choke us

So where will we be heading to? I say probably a few more years of uphill until one of these big companies who have been funded by the large venture capital firms start to collapse due to whatever reason.

But this thought led me to my second question – are we getting too obsessive with the price tags? I think there should be different types of price tags for different type of startups. If you are a running a business that is focusing on local problems, use a local currency based price tag. If you are a regional setup that has customers across countries, then the valuation should be a price tag that makes you comparable to your peers throughout the region/continent. The point of having such price tag, my humble opinion, is so that you know how far you have progressed relative to the rest. As for venture capitalists, I do think more focus should be on the fundamentals rather than overweighing the valuation factor. Especially for early stage funding rounds – do we even know how reliable are these valuation figures?

Anyway, that’s all the ranting from me today. Til next time.

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