Valuation vs. Value
There is no question that tech valuations are frothy (to say the least) at the moment. People however try to argue that ‘this time it’s different’, amongst other reasons a commonly cited one being that tech companies today deliver ‘real value’, have real revenues, scale etc etc.
Firstly : there’s never been a bubble in history during which a certain few were not convinced that ‘this time it’s different’. Unfortunately for the rest of the people those ‘certain few’ are often the influencers and not surprisingly the ones with the biggest vested interest in profiting from the inflated valuations that they so help drive. In the subprime mortgage bubble it was the same: a certain few convinced themselves that ‘this time it’s different’, fundamentals don’t matter, and that people could be handed mortgages way above their affordability , no matter if they couldn’t repay them, because ‘this time it’s different’.
It’s easy to cook up why this time is different. It’s harder to de-clutter the noise and figure out why the fundamentals still remain the same (as they always do).
Whilst I don’t disagree for one second that todays tech companies do actually deliver real value (after all I am a tech entrepreneur myself and I see that both in my products – PeoplePerHour.com & SuperTasker.com and the ones I use so avidly), whilst I don’t disagree that the way we live and do business is rapidly changing and being disrupted by tech, I think the ‘Valuation vs. Value’ argument is intrinsically flawed for a few reasons
- Value is not enough
Its not enough to just deliver value. You need to do it in a way that’s sustainable in the longer term and builds on fundamentals. You can shoot for the moon overnight and fall to ashes just as fast if you’re building a business without fundamentals. Many examples come to mind, from Fab.com, Colour, Joost to more recent from our space – HomeJoy – who filed for bankruptcy a few months ago after raising ca. $100m. All of these were once amongst Silicon Valleys darlings, had multi billion valuations and some achieved hundreds of millions in revenues. Yet that wasn’t enough.