
37signals valuation tops $100 billion after bold VC investment (2009) - lukashed
https://37signals.com/svn/posts/1941-press-release-37signals-valuation-tops-100-billion-after-bold-vc-investment
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paul
It's funny that people here think he's making fun of snapchat, but the article
is from 2009. He was making fun of facebook's $6.5b valuation (or maybe it was
$10b). The fact that he was completely wrong (fb is now over $100b) doesn't
stop people here from thinking that there's wisdom in this nonsensical post.

~~~
outside1234
its not nonsensical. there is truth in pointing out that a VC valuation does
not equate to a true valuation - either in the upside or downside.

~~~
csomar
Facebook generates $8bn of revenue per year. I guess those who valued Facebook
at $6bn at that time were quite wise.

You can't say anything about the current investors. Only the future will tell
if it's a wise investment.

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coldtea
I could generate $8bn of revenue by selling $100 bills for $10.

Profit now, that's another thing.

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notacoward
It's like a joke I heard about Icelandic banks a while ago. Neither of us have
any money, but if we're banks I can sell you a cat for a billion dollars and
you can sell me a dog for a billion dollars so that we're both billionaires.
The way that insufficiently regulated banks and stock/commodity markets
effectively allow certain people to create new money from nothing and then
trade it for things of real value is only a tiny bit more subtle than that. Of
course, sooner or later what happened in Iceland will happen anywhere that
such things are allowed to occur.

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riffraff
is there something forbidding me and you to trade pets for billions of
dollars, as opposed to banks ?

I think the problem appears when other people are buying shares of our pets as
if they were actually worth billions.

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anpalton
The analogy is false. One of the problems with what Icelandic banks were doing
was this:

"The rules prevent banks from posting their own debt as collateral (Central
bank of Luxembourg). The three banks circumvented this rule by posting each
other’s collateral at the CBL. This process is known as issuing ‘love
letters’. However, CBL later restricted this type of funding. This, however,
continued in other places such as Central Bank of Ireland (CBI)."

From: [http://financetrain.com/how-icelandic-banks-funded-their-
ris...](http://financetrain.com/how-icelandic-banks-funded-their-risky-
business-models/)

~~~
notacoward
It's a funny thing about analogies and metaphors: they don't have to be
absolutely perfect in every detail to have explanatory power. What actually
happens is slightly more subtle (as I said) but the principle still applies.
Thank you for providing an example.

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wensing
Snapchat isn't being valued on revenues or potential monetization, but rather
as a piece of someone else's (eg Facebook's) business model.

In the Steve Blank sense I don't think it's even right to call Snapchat or any
of these "growth looking for a home" things "startup"s. They aren't actually
searching for a business model. Their plan is to grow until they dock with the
Deathstar.

~~~
wpietri
I don't have the reference handy, but somewhere Steve Blank basically says,
"If there's another bubble, ignore all this advice. Building a real business
only makes sense when the market is sane."

The only way I could look at SnapChat as a startup is that their market isn't
consumers, it's Mark Zuckerberg plus a few people who are trying to compete
with Facebook. We know that Facebook is willing to buy things perceived as
threats to their business model, or perhaps to buy large sets of users they've
failed to capture.

It's a stupid business to go into, in that the odds of success are really bad:
low barrier to entry, lots of interest, lots of competitors, a winner-take-all
game. But if you win the lottery you can get zillion-dollar offers from Zuck
and feel like a genius.

Bubble 1.0 was filled with built-to-flip companies, and one of the things I
like best about the Lean Startup movement is that it demands building an
actual business. Sad to see that the pendulum might be swinging back some.

~~~
sillysaurus2
_The only way I could look at SnapChat as a startup is that their market isn
't consumers, it's Mark Zuckerberg plus a few people who are trying to compete
with Facebook. We know that Facebook is willing to buy things perceived as
threats to their business model, or perhaps to buy large sets of users they've
failed to capture. It's a stupid business to go into, in that the odds of
success are really bad: low barrier to entry, lots of interest, lots of
competitors, a winner-take-all game. But if you win the lottery you can get
zillion-dollar offers from Zuck and feel like a genius._

I wouldn't be so quick to dismiss the Instagram acquisition as crazy. Isn't
Instagram now used by most teenagers, and sometimes preferred over fb?

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001sky
Nobody is doubting spending 1% of your 100b market cap on your #2 competitor
is a dumb idea. And your point is well taken, that empirically the defection
from fb is to Ig, which is a _lot less_ of a problem than it otherwise would
be for fb stock.

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nrao123
If 37signals put thier money where the mouth was & actually shorted the
companies (FB & Twitter), they would be in a lot of pain now.

This original post by Jason Fried was making fun of Twitter which went from
1bn to 25bn. More background here: [http://www.forbes.com/2009/10/15/venture-
capital-software-te...](http://www.forbes.com/2009/10/15/venture-capital-
software-technology-enterprise-37signals.html)

Another post from DHH said that the value of FB was not 33bn & it's now
roughly 120BN [http://37signals.com/svn/posts/2585-facebook-is-not-
worth-33...](http://37signals.com/svn/posts/2585-facebook-is-not-
worth-33000000000)

Not saying 25BN & 120BN are the "right" valuations but most people would agree
that the prices that 37s made fun of seems like great deals. They could still
go back to less than 1bn & 33bn (users leave, consumer trends change, get
bored etc) but those are different risks not monetization risks that 37s is
making fun off.

~~~
mdparker89
The market isn't necessarily efficient at a given point in time. Just because
the stocks are going up, doesn't mean the valuations represent the intrinsic
value of the company.

Shorting is a dangerous strategy, especially if you feel the prices are
delusional. "The market can stay irrational longer than you can stay solvent."

~~~
nrao123
Yes- agree with you. I think DHH/JF & 37s were not making as much fun of the
actual valuation but the lack of monetization.

If we stretched the valuation analogy, it could be applicable to AMZN/Bezos as
well- where there is always discussion on their lack of profits & nose bleed
valuation. FYI - Bezos is an investor in 37signals.

I have lots if respect for Bezos, JF, DHH etc. I just think it's a little
"unfair" (for lack of a better term) to make fun of companies before their
monetization plans have kicked in.

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z92
Is there a way to add the year [2009] in the title?

I remember reading it back then. It's interesting how it's still relevant
after all these years.

~~~
lukashed
Unfortunately I can't edit the title anymore, so a mod has to do it. Sorry for
that, will remember it next time!

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codex
Isn't it funny how VCs really invest in order to take advantage of the mania
of later VCs or the public. Perhaps that's why founders found, too.

A noble calling it is not.

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linuxhansl
The scary thing is that I believed it for a minute before I followed the link.
Valuations have become so inflated, nothing is impossible.

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Killswitch
Whether it's an article from 2009 or not, Jason has some good points.

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pyrrhotech
The VC industry is largely a scam. VC funds underperform passive investment in
the S&P 500, and greatly underperform similar risk asset classes such as the
Russel 2000.

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thrush
Is it possible that Snapchat is interested in slightly more than money? When a
few 20-something year olds get valued at ~$3 Billion, I think it's fairly
likely that they've made some money already, probably to the point that they
will be set for life. It seems that Snapchat is an opportunity for them to
leave their mark on the consumer software world.

Besides, Snapchat is certainly an outlier and I don't think that bubble
indicators rely on outliers. A better indicator may be the new selfie app that
Bieber backed, but I'm not sure that I'd lump the two together in the same
category (Snapchat is many degrees of magnitude more popular and successful at
acquiring a user base).

~~~
frankdenbow
Exactly. They already cashed out 10mm each for the founders so makes sense to
go for the win.

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tzury
If Facebook is worth X, and there is a raising service which generates x/40 of
social traffic, then it will make sense for Facebook to evaluate the new kid
as Facebook/40, or to say the least, the owners of the raising service will
expect the offer to be at that rate.

If there is a bubble, the bubble is at Facebook and Twitter, and not at
Instagram or Snapchat or Pinterest or any of those zillion-terabytes-daily-
uploads services.

There were several articles recently telling how teens are away of Facebook,
and for them, it shall be rather natural to try to stay the ultimate social
hub.

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snapoutofit
The irony :) [ref. twitter], however quite a bit more change than 1$ changed
hands this time around.

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taylorhalliday
I get that DHH doesn't believe in this whole trend of over-valuation of
companies that don't make any cash, but doesn't this article give you the
sense that they're a little bit jealous that they're not in that group?

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esmevane
This article was written in 2009 by Jason Fried.

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isalmon
Jason probably spent too much time with guys from Vooza:
[http://vooza.com/videos/remote-working/](http://vooza.com/videos/remote-
working/)

~~~
jarkko
Quite certainly considering that Matt was the first employee of 37signals.

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bachback
a timely repost.

======

value revenue profit

TWTR 25B$ 0.3B$ -0.08B$

AMZN 170B$ 61B$ -0.04B$

CRM 34B$ 3B$ -0.27B$

~~~
roasm
Point taken, but I highly doubt most investors would roll their eyes at AMZN's
numbers. It's not that they can't turn a profit; they're opting not to at this
point.

~~~
walshemj
Or taking advantage of tax loop holes around licensing to move the profit
offshore - or "sorry Mr Cameron we are just a poor loss making company can we
have a taxpayer hand out to subsidize our minimum wage workforce ;-)" even mad
Nad aka nadine dorries can see through that one.

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antidaily
I'd buy $SGNL.

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kimar
It's funny because it's true.

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anilshanbhag
That formula deserves an award !

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iancarroll
This is from 2009, just saying.

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trendoid
Can anyone explain why 2009 news being posted now? OP has some context in
mind?

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pearjuice
[http://blogs.wsj.com/digits/2013/11/13/snapchat-
spurned-3-bi...](http://blogs.wsj.com/digits/2013/11/13/snapchat-
spurned-3-billion-acquisition-offer-from-facebook/)

[http://www.theverge.com/2013/11/15/5106950/google-
snapchat-4...](http://www.theverge.com/2013/11/15/5106950/google-
snapchat-4-billion-buyout-rumor)

~~~
trendoid
thanks, funny I am being downvoted for not being up to date.

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dannowatts
this is amazing!! fucking hilarious.

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shaohua
April fool

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RossM
(2009)

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omonra
Even though I'm tired of all the [Political / NSA / Women in Tech]
discussions, posts like these make it worthwhile to check back in.

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maerF0x0
omg this is so funny

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heedit
More like $5.

