When did the world of startups become a "highest valuation" contest?
Who cares? To whom, exactly, do these rankings matter?
Are we supposed to believe that these companies are more important--or their futures more assured--because of which one has the highest valuation, compared to the others, at this point in their youths?
Certainly, these valuations make news for a reason. For founding teams and key investors, the actual numbers represent an important notch on the scoreboard--a step in the direction of a profitable exit.
I get it.
My quibble is not with the reporting on private-sector valuations per se. It's with the notion that it somehow matters--at this early juncture--which of them has a higher valuation than all the others.
Early valuations, lest you forget, can quickly go south. Here's a sampling of reminders:
Grocery delivery service Webvan went public in late 1999 and the company soon had a $6 billion valuation, notes Stephen Simpson on Forbes. (Despite less than $5 million in revenue.) The company went bankrupt in 2001. A similar fate befell Pets.com and eToys at about this time.
- On Groupon's first day of trading in 2011, its valuation was $16.6 billion. By early 2013, it was valued at $3.8 billion, notes Knowledge at Wharton, having lost $13 billion in market cap in under a year.
You get the picture.
I'm not equating today's market to that of the dot-com era, or any other era.
I just want to gently admonish: Regardless of era, an early valuation is only that.
One tech founder who agrees with me is Patrick Grady, who founded e-commerce company Rearden Commerce just before the dot-com bubble burst. (It has since grown to more than 500 employees.) Though Rearden, after its last major round of financing, had a valuation of $1.43 billion, Grady told Inc's Jeremy Quittner in no uncertain terms that entrepreneurs should not view valuations as personal or professional milestones:
Any entrepreneur should not really be looking at [valuation milestones]: I raised $100 million, or I got money from a certain venture fund, so now my company is worth a billion dollars. I just think those are all the wrong measures. I am old enough and I have enough scar tissue that I am pretty sure I am right about this. Be careful what you ask for in life, because you might just get it. With a significant number like this comes a very high expectation, especially from new investors: I valued your company at $1 billion and I, of course, want a big return on it. Where is my $5 billion valuation?
So you see, with every wish--and every high, early valuation--comes the burden of expectations.
It's crushed many a startup over the past 20 years. I'm not necessarily predicting that this will befall any of the companies whose valuations currently top the charts.
I'm just hoping that today's founders digest the charts with a grain of salt.