Bloomberg gives the rundown on how tech companies get their billion dollar valuation payday. Worth a read, for all of the aspiring new economy wanna-be-billionaires to be.
“Snapchat, the photo-messaging app raising cash at a $15 billion valuation, probably isn’t actually worth more than Clorox or Campbell Soup. So where did investors come up with that enormous headline number?”
“Here’s the secret to how Silicon Valley calculates the value of its hottest companies: The numbers are sort of made-up. For the most mature startups, investors agree to grant higher valuations, which help the companies with recruitment and building credibility, in exchange for guarantees that they’ll get their money back first if the company goes public or sells.”
“Interviews with more than a dozen founders, venture capitalists, and the attorneys who draw up investment contracts reveal the most common financial provisions used in private-market technology deals today.”
If you’re unfamiliar with how press and publicity, backroom deals and handshakes shape todays economy, this is a good read.