What would failure-rate adjusted valuations of startups look like?
VC-firm-level returns are meaningful, but it’s weird that individual valuations are a vanity metric. Valuation: price at which you sell a % to a private group that is expecting median investment to be worthless.
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I’m beginning to think it’s almost malpractice of some sort to use valuations for anything other than IRR computations to allow VC firms to have a basis for raising the next fund. A purely technical use case since big returns take the longest to yield and failures are quick.
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If you used real returns, VC investing would be too slow and conservative, so it’s ok to use valuations for that *in a portfolio* but using isolated valuations to valorize pre-exit founders is shady af. Makes failures look like going from billion to zero. No it’s zero to zero.
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Ah got it. Valuations are how startups do virtue signaling 😐
It’s basically BIRGing *average* returns in a power-law sector where *median* returns are more meaningful but far less flattering.
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The VC funding is already failure-adjusted. The “risk-adjusted” price for a die-roll where a 1 pays 12:1 and >1 pays zero? Just because it’s high variance doesn’t mean the avg result is meaningless. Unless the firm is overleveraged, but that’s not about the individual bet value.
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Yeah see follow on tweets. I’m objecting to precisely the use of individual valuations to talk about the company rather than the portfolio value of the VC (which is fine)
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That’s what 409a valuations are supposed to be. So about 10-25% of the venture valuation
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