
Why Public and Private Market Valuations Are Different - prostoalex
http://mahesh-vc.com/this-is-why-public-and-private-market-valuations-are-completely-different/?utm_campaign=Mattermark+Daily&utm_source=hs_email&utm_medium=email&utm_content=22252728&_hsenc=p2ANqtz-_uVtNM8RBV7Fb8QaQnvCO8YjWcscXYZZvhzPNmfhXR6yWWXwRoIMYCPPTMZ9136W8OELOML8iZimAILWvBBRlEz18ZeA&_hsmi=22252728
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fredkbloggs
The title and thesis don't match the data. This has nothing to do with whether
a corporation is privately or publicly held, and everything to do with where
it is in its lifecycle. The actual assertion made, which the evidence does
match, is that younger companies are harder to value because uncertainty over
growth and future margins is much higher. Seems pretty obvious.

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paulsutter
Easier to read as a scatterplot:
[http://s2.postimg.org/ysodz3mc9/multiplevmargin.png](http://s2.postimg.org/ysodz3mc9/multiplevmargin.png)

This is great data, and a lesson for where an early stage company's valuation
is headed as a company matures.

Also a reminder why VCs have a liquidation preference. At early stages they're
willing to pay higher multiples assuming rapid growth continues. But they're
protected if it doesn't.

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boulos
The slope of your line is basically (EV/Revenue)/(Profit/Revenue) => EV/Profit
which sums up what this article should have been about: P/E ratios are what
actually matter. All the other terms just let you thread the needle between a
company that's heavily reinvesting (where P may be misleading) versus one
that's generating so much cash it can't imagine putting the rest to good use
(Apple, Google, to some degree Facebook). Still, I definitely agree that your
chart or something like it is what I expected from the article.

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fiatmoney
There is a hypothesis that this is driven by the fact that VC firms are
playing with other people's money, which must be "invested" in order to
collect fees, and they often sell those assets to other VC-backed firms which
are also using other people's money.

In an illiquid environment with tons of collusion and principal / agent
problems incentivising towards higher prices (and thus greater AUM), you'll
tend to see prices diverge from those in a market open to anyone who thinks
they can play the game better.

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Spooky23
The private market for VC backed companies is illiquid -- there's no real
market. The private valuations are mostly sales fluff and politicking about
dilution.

For conventional companies, reality is different. WalMart is what it is,
nobody is going to pay a 100x multiple for it.

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AndrewKemendo
>The private market for VC backed companies is illiquid -- there's no real
market.

If you are talking about a secondary retail market - which is what the NYSE
and NASDAQ are - then that is true, but misses the point.

There is an actual market and it's within private finance both primary and
secondary. Angels, VC's, LP's and other companies are the regulation
sanctioned participants in this market. Just because it's a smaller market
doesn't mean it isn't a market.

>The private valuations are mostly sales fluff and politicking about dilution.

Not true. Those valuations are the basis for real cash based investments or
mergers/acquisitions.

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shalmanese
Um, liquidation preferences for one seems like the easy answer.

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wahsd
How about the third option, both public and private companies are overvalued.
And no, they can't both be undervalued, it's not possible, especially in this
market.

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fredkbloggs
While this is almost certainly true relative to the (as yet unknown) true
value of most corporations, that doesn't change the fact that most people now
living will never again see 3% dollar interest rates. So while the dividends
you get from investing in any of these things are not worth the capital,
you'll probably be dead before the principal is lost, and in the meantime
you'll have gotten more than you could have by owning Treasuries.

Overvalued? Yeah, for sure. Only game in town, too, until the revolution.

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dovereconomics
It's dangerous and biased to assume a company like Apple had its stock
increased because of 'innovation' or 'disruption'.

A lot of it was a consequence of Fed's policies mainly with ZIRP and QE. From
that angle, overvaluation of public companies is more likely than the latter.

And, if startups are 'less undervalued'~'more overvalued' than public
companies, it only means they're more prone to volatility, busts and
bloodbaths.

