In VC there is a lot of talk about valuations.
But really vc’s arent valuing companies, they are pricing stories and it’s an important distinction.
What’s The Difference
Valuation is a game you can only play in a late-stage company lifecycle. It is about trying to put on value on predictable future cash flows.
Pricing Companies happens in the absence of being able to do this — it is betting on a story. You are simply believing that at some point in the future someone will pay a higher price.
The numbers your vc believes depend on the narrative you sell.
What’s This Means for founders
Everything is storytelling.The story drives the price. There is nothing else to value. It’s all the belief in the story.
The price a VC will pay is simply a function of the future story they believe
I can have 30 different stories about the value of your company which range from going bust, to billion dollar plus and everything in between. To illustrate, here’s two different stories for a later stage company – Uber.
Chart 1 shows the different stories in terms of market size and growth rate:
Gurley = uber is in £300bn car service market.
Damoradan = uber in £100bn urban taxi market
Chart 2 shows how the different stories lead them to a valuation range of £6bn to £53bn depending on the story inputs.
The difference is simply the future story you believe. The numbers you plug in always follow the narrative.
No matter where you are in the lifecyle. founders need to get amazing at one thing…..tell the biggest fucking story you can.