Architecting valuations (building a house of cards)

In a day and age of valuations as  score card there are in some cases extraordinary efforts being made to forcefully make certain milestone valuations happen (100m, 500m, 1bn etc).

The right way to make a high(er) valuation happen is of course to have someone just pay that price with fair and appropriate growth / later stage financing terms. Lots of companies can pull that off – even to the point where new later stage investors are just getting common stock.

But that is not what is going on in many cases. This is what’s going on:

New later stage investor: “Hey so I don’t think your company is worth $500m; maybe $200m – BUT if we can agree that I can get a 2x liquidation preference on my $50m and a full ratchet I would be ok with it. You should be fine with it because you told me next round will be $1bn+  – so we both win. You get your $500m valuation now, you don’t get a lot of dilution and I know I’ll make a safe 2-3x.”

Basically this means the new later stage investor will still make a 2x return if the company is sold as low as for $100m (!). And

Cross publisher app constellations & bundles

Cross publisher app constellations & bundles

We all know that folks increasingly prefer to use their favourite app from a specific developer / publisher for a specific use case vs. say using a wide range of apps from a single developer / publisher that is trying to cover all the bases. You can’t be great at everything and user experience on mobile matters so much more than on desktop – so that’s why highly vertical applications are winning.

Most of these vertical apps are freemium services and you can do a lot with them without paying. But once you want to go premium say with a whole bunch of these apps – that can get a little pricey on a per month basis and folks aren’t yet used to that (vs the old world where you paid hundreds up front to have MS Office etc. as part of your new PC).

So Evernote, Lastpass, Pocket and Wunderlist (a portfolio company of ours) teamed up to offer a pretty cost attractive bundle of their premium services for a limited amount of time.

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Now these folks can do that because they have