It's got nothing to do with 'accounting' at all, it's a matter of potential. Lots of smug fools laughed at $15 billion valuation for Facebook. A few years later and it's generating more than that in annual revenue.
It seems that many people still find it difficult to comprehend what 1+ billion internet/computer users means for technology companies that are capable of scaling.
There are many VC backed companies that never state their valuation.
There are many VC backed companies that do state their valuation after every funding round and buy up all the press releases [on techcrunch, exhibit a] so everybody knows. So their secretaries, banking partners, trophy wives, and sycophants fawn over them more.
All of those companies have completely different 409a valuations, which are MUCH lower, because you can't just say "well 10% was sold for this much, so therefore 100% is this much". Nobody ever posts those.
The FASB accounting standards are also much more intelligent.
These valuations are literally only for impressionable people that don't want an intelligent valuation.
409A is lower because preferred shares have more rights over common shares. Employees want that number to be lower, to enjoy greater gains and lower exercise costs. In any case, as a company approaches an IPO event, the spread between common and preferred disappears. None of this is particularly controversial.
Yes, and? It's exactly that kind of focus - focusing on the average outcome rather than the power law outlier outcomes that return your entire fund - that characterize the people who laughed at FB's valuation, as opposed to the VCs who invested in FB.
I agree that risk is certainly required if you want to make a return on your investments, however, all I'm saying is that for every Facebook, there are hundreds more that don't make it where money gets wasted. If I were an investor I'd want to make sure there was a tangible product doing something innovative out there, rather than just a new way to collect and sell user data. I'm not a VC nor do I really inderstand the mindset though, so if investing in miracles is your thing and has worked for you then more power to you.
Just want to point out that in many industries a revenue multiple of less than 1.0 is expected [1], such that generating greater than $15 billion in revenue does not automatically result in a company worth $15 billion. That being said, FB's net assets are $50 billion (and it's market cap is much, much (holy cow it's alot) higher), so clearly those that got in at a $15 billion valuation are very happy right now.
Software, for good reason, is not one of those industries (like aerospace, home furniture, etc.). Incremental capital cost in software per user is vanishingly small compared to building planes or sofas.
Market valuations are not the same as accounting valuations; American companies also have to use the "sane, conservative" figure in the appropriate contexts.
Yeah, they'd laugh at you in London for asking for this kind of valuation unfortunately. (Except for the usual caveat of knowing the right people, etc.)
