Tuesday, October 30, 2007
Industry Note: Relentlessly Breathless --> Heartattack
You know something?
The hype is really (really, really, really, really
) way out of control.
Facebook - a $100 billion company? Plentyoffish - a $1 billion company?
Did a haze of vapor cocaine descend on the Valley this morning? The value of Facebook just went up by...uhhh...an order of magnitude
...in two days? Are you kidding?
Look: let's all please
take a deep breath.
Let's realize that gigantic valuations are not
the same thing as real, durable, value creation.
In fact, the more we drink the kool-aid, the more we're actively helping the people who are only in it for a quick buck.
I think that we should all try being just a wee bit more critical of the businesses we're looking at and talking about. This means you, journalists, ReadWriteWeb, VentureBeat, and of course, the relentlessly breathless TechCrunch (ex Erick Schonfeld, who is still writing like a champ).
Well, it would help if you told us your reasons why you think Plentyoffish *isn't* worth $1B. You are critical of me in your post, but do not back it up. I'm always willing to accept criticism, but not if it's delivered with no evidence.
FWIW I don't think Facebook is worth $100B either.
The main reason the valuation is inaccurate is that you and Markus are applying a multiple from one startup (Facebook) to value another (PlentyOfFish).
This is a big no-no in valuation. We don't know the real value of Facebook pages yet, and so using them to value others can get us into massive inflationary spirals.
(ie, i get excited, and value a pof page at 1% more than a facebook page...tomorrow, you get excited and value a facebook page at 1% more than a pof page...and on, and on)
The point is that for this kind of valuation, it's better to use harder multiples.
Of course, there are other reasons as well - POF can't scale as broadly as Facebook, it's less sticky, it's margins won't be as strong over the long-run (limited scope for ad revenue), etc - but these are secondary to the error in valuation.
Thx for the comment - i appreciate it.
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