Yesterday a debate erupted on Twitter between VCs over whether term sheets should express a company’s valuation in pre-money or post-money terms and whether that even matters. This started with a blog post by Rob Go from Nextview on why post-money valuation term sheets have become more popular. That led to a somewhat combative tweet by Jerry Neumann that post-money term sheets pit entrepreneurs against their existng early stage investorsVCs who offer post-money term sheets get moved to the bo...

Even as recently as Web Summit at the beginning of November I was asked about a Bubble as part of a panel. It has since occurred to me that the problem with using that word to denote possibly overextended valuations is that is suggests a sudden correction in the form of a “popping” or “bursting” of a bubble. That’s pretty much what we experienced at the end of the actual Internet Bubble when many companies disappeared entirely and others were down 90% or more. So I want to propose a new word:...

We all know that valuations in the private markets are high at the moment and generally ahead of public market valuations. There are multiple reasons for this including principal agent issues in venture capital and most importantly the potential for exponentially increasing returns in network effects businesses. The one I want to focus on today though is a potentially wrong assumption about long run profitability. Craigslist has not invested in a native mobile experience and as a result there...

With the NASDAQ going above 5,000 for the first time since the year 2000 valuations in tech are once again on everyone’s mind, mine included. It has been a long period writing here on Continuations that I have thought valuations were too high and they have only gone higher since. All the arguments I provided back in 2012 are still true and in particular the line that “rates of return available on many other investments are at historic lows” – this is especially true for interest rates. Very l...

Dave Winer last Thursday had a post called “It’s definitely a bubble.” OK, so it was more of a rant than a post but I share the sentiment of his title. The biggest issue that I see in the venture market right now is the assumption by both entrepreneurs and investors that winner-take-all economics apply in pretty much every market and for pretty much every company. With several billion people on the Internet and much of commerce shifting online that assumption will let you justify ridiculous f...

There is no doubt in my mind that venture valuations have become incredibly stretched. I have been thinking about why that is and what will come of it. First off, here are the factors contributing to the stretching of valuations. It starts with the genuine potential for building hugely valuable businesses, which is based on four key factors: 1. The immense possibility for scale on the Internet – global businesses with millions of customers can be created in relatively short time periods. 2. T...

As believers in the singularity are quick (and right) to point out, we don’t do very well as humans when it comes to understanding exponential growth. This is not a new insight as we can see from the much older story about the peasant who wins a chess game against a king and ask as his reward for simply a single grain of wheat/rice/whatever on the first square to be doubled on every subsequent square. It is worth frequently reminding ourselves of our lack of intuitive grasp for exponential gr...

The range for early stage valuations is probably broader than I have seen it since the first Internet bubble. I am aware of raises at the moment all the way from pre-moneys of below $2 million to $50 million. These are all early-stage pre-revenue companies but with launched services. What accounts for the huge range? There are of course the usual factors, such as the strength of the team and the potential size of the market. But the real driver seems to be whether a company is perceived as be...