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16) And this gets to a weird question: Who made more this year: Coinbase, or Avalanche? Well, on the one hand, Coinbase made ~$6B or so, and the AVAX token made ~$12B (more fully diluted). But on the other hand, maybe that's not comparing apples to apples.

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17) See, Coinbase made $6B in "recurring" revenue. AVAX's market cap went up $12B. But Coinbase's market cap went up ~$50B! So what's the right comparison? Well, one key thing: That $6B is Coinbase's and has been fully made.

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18) The $12B from AVAX is only sustained if AVAX continues to perform well. Kinda like Coinbase's market cap. So I think that it should be compared to $50B, not $6B.

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19) But, responds Avalanche, what if we kept doing what we did last year -- kept minting tokens? And the problem is: doing that would devalue AVAX and those future tokens.

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20) And, Weird Trick #3: Projections. If a company is new, its revenue probably isn't mature. So how do you value it, if you expect growth? Well, you project out its future revenue, of course!

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21) Where, here, "you" means "the company", and "project" means "create an excel spreadsheet with large growing numbers". You'd be surprised how many companies are already valued off of their 2025 revenue!

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1) BAKKT is about to go public. There are a number of "interesting" things in their deck. sec.gov/Archives/edgar

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22) Alright, so back to the original question: How are raise valuations _actually_ determined? In some sense, you take 20 * (projected annual revenue - projected annual expenses). But there's as much art as science in determining those.

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23) And so, in practice, you see a tug of war. The company paints itself in the best light it can, making liberal use of dubiously recurring revenue and 2025 projections. The investors, in turn... absolutely shit on the company.

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24) They have to disguise it, because they're supposed to be aligned. But they often do what they can: making unreasonably conservative assumptions, highlighting flaws, making isolated demands for rigor (slatestarcodex.com/2014/08/14/bew), and negging.

slatestarcodex.com

Beware Isolated Demands For Rigor

I. From Identity, Personal Identity, and the Self by John Perry:”There is something about practical things that knocks us off our philosophical high horses. Perhaps Heraclitus really thought …

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25) Of course, as soon as the investment closes, their tune changes, and your company is grossly undervalued according to them; they're now _actually_ on your side! Or maybe, none of this matters. Maybe each VC firm *has* to invest in at least one crypto company this year.

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26) If they don't, their investors complain. If the company's valuation is less than $1b, they can't invest $100m. If the company's valuatoin is more than $10b, they have to justify it to their investors. Alright, fine, $4b valuation for everyone!

10:07 AM · Oct 13, 2021Twitter Web App

PushMeToTheHustle

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And this is what we have public markets for. Do you think all this private jockeying between parties is more financially optimal than a market pricing?

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generally I think public markets are more efficient; but also, finance.yahoo.com/quote/GME/

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Sir, I want to invest in future FTX ICO's. Thank you.

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Outstanding thread! You summarised the focus of what was taught in my masters program over 8 wks in 1 thread; the behaviour of VCs. Can’t believe the restaurant was called the Peking Duck and they didn’t show up. Was that a bad pun on pecking order? I’m veg. Scene’s familiar.

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please change my life

Julien Bouteloup

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Really great thread mate 🔥

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rather than spread your investment, maybe M&A is better.

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What about the size? Uniswap for example generate revenue with very low expenses and can continue doing it without growing while Coinbase already has a huge team and growing will imply always more people. Those defi projects with AMM can project their costs probably fairly

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Its all well rigged