The first week on my first job after college I came into work super early and left super late. At the end of the week my then boss called me into his office and said: “it’s great that you are so enthusiastic about this job, but you are setting a high bar for everyone’s expectation of you — what will they think when you come in a bit later next week?” I have never forgotten that because it embodies a critical lesson: what others expect of us is in no small part determined by our own behavior (...

I wrote a post not that long ago about how take rate (or rake) is one vector for disrupting incumbent marketplaces. Recently I have seen a number of startups that have taken this to its logical extreme: charge nothing at all. Several of these companies are growing very rapidly. But there is an important catch here: how should they be valued? Several of the startups in question are raising rounds based on a GMV metric, i.e. the size of their marketplace. Now we have a lot of experience with ma...

In the current valuation environment many entrepreneurs seem to believe that only two numbers matter in a financing: the amount of the raise and the dilution. This leads them to buy into the idea that more money for the same dilution is always strictly better. Combined with a lot of money being available from investors this is resulting in Series A rounds of $10 million and more. What could possibly go wrong? The number everyone seems to be forgetting about is the post-money valuation. It is ...

Andy Baio provided an excellent perspective on Facebook’s acquisition of Instagram by analyzing the price per active user. This analysis shows that at about $30 per user this deal is far below many previous acquisitions. It also indicates that Yahoo’s acquisition of Broadcast.com continues to stand as the most outlandish deal at more than $10,000 per active user. At USV we have tracked a meaningful number of investment rounds across our portfolio and the data from this suggests that $30 per u...

I was going to write a post about Facebook’s valuation, but Bill Gurley has done such an excellent job, that the better idea is to point at his post explaining “Why Facebook Clearly Belongs in the 10x Revenue Club.” There is one other important point to consider in thinking about Internet company valuations in the current economic environment: low interest rates. Companies that are still growing and have a lot of room for future growth have a fair bit of their value sitting in the future – th...

There is something frequently missed in thinking about the value of common shares in startups. These shares are actually options! The Theory A common share in a startup has the same payout structure as a call option. There is a range of outcomes in terms of total enterprise value at exit for which common shares are worth exactly zero. This range is from no enterprise value (shutdown) to the aggregate value of preference (including, if applicable, participation multiples and dividends) plus an...