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How To Deal With Crazy-High Startup Valuations

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I saw a pretty interesting thing on Twitter this week. Founders Fund general partner Keith Rabois posted the following.

Keith is known for speaking his mind. And he has a very good track record. Founders Fund has a reputation for not overpaying on deals and somewhat going against the traditional Northern California venture capitalist (VC) culture. (In fact, Keith recently packed up and moved his operation to Miami.)

So what he said is pretty important. “There are no VC funds with pricing discipline. All of us have caved.

This is true from what I’ve seen. I’d estimate that California-based series A deal valuations — where VCs are involved — have at least doubled over the last year. In the case of a hot software-as-a-service deal, I’d say it’s risen 2.5 times or more.

This phenomenon happens primarily in series A deals where multiple VCs have “bid up” the price. Seed valuations are also rising, but they aren’t quite as crazy yet. Most institutional money is invested once companies have found “product market fit,” which often coincides with series A funding rounds. 

High Valuations = Blown Expectations

The worst part of all this is that these crazy high valuations are bad for everyone involved. The founders may think it’s good to raise at a higher valuation because there’s less dilution. But raising at a high valuation sets investor expectations even higher. Unless the company executes near-perfectly, things get difficult. It becomes a major challenge for the company to raise the next round and incentivize new hires with stock. 

The company may have to do a “down round” (where the price decreases in the subsequent round of funding), which lowers team morale. 

Raising at crazy high valuations is not good for either investors or founders.

How to Avoid Ridiculous Valuations

To avoid these ridiculous valuations when considering potential startup investments, try to invest at earlier stages. Go for companies that haven’t met with a ton of VCs. 

Prices are a bit more reasonable at the seed level — though even the seed deals in the San Francisco area are getting a little out of control.

So the next idea is to look for startup deals outside of California, as I discussed a few weeks back. And today, the easiest way to do that is to explore equity crowdfunding sites

You can find deals from all over the country on equity crowdfunding sites. And I promise you the valuations are lower in rural Idaho than they are in Silicon Valley.

Valuations on equity crowdfunding sites tend to be much lower than deals where multiple VCs are involved. However, the average deal quality is also lower. So you have to sort through more deals to find high-quality, high-potential deals.

But make no mistake, there are high-quality deals at reasonable prices that anyone can invest in. You just need to do some serious screening and searching to find them. 

Go for companies that have made a lot of progress and, if possible, are at the early stages of revenue generation. The competition for “proven” series A deals is absurd right now, so prices are much higher for companies that are generating significant revenue. If you invest in a pre-revenue company, make sure there’s real value there. Look for potentially valuable software and engineering talent, for example. 

You will occasionally find a more established startup with great potential and a fair valuation. Sometimes the founder realizes it’s not in their best interest to raise at a crazy valuation. Or maybe the founder doesn’t realize the value of what they’ve got, because they don’t know any California-based VCs. 

Either way, if you see a deal like this, jump on it.

And if you’re looking for some additional guidance on deal selection, check out First Stage Investor. Andy Gordon, Vin Narayanan and I provide regular research on individual deals we think are worth exploring.

Have a great weekend, everyone.


PlatoAi. Web3 Reimagined. Data Intelligence Amplified.
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Source: https://earlyinvesting.com/how-deal-with-crazy-high-startup-valuations/

Crowdfunding

Why Does this Perfume Smell Like Gas?

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Take a Look at these Pandemic Tattoos

2020 was a historic year. Perhaps that’s why so many people are getting something special to remember everything that happened. Get the scoop »

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From New York to Chicago — In Minutes

How fast is this new high-speed train? So fast that you could grab a deep-dish pizza in Chicago, and enjoy a Broadway show in New York… in the same afternoon »

Curing Cancer Just Got Easier

Doctors just discovered that there’s a single protein linked to all kinds of cancer. And now, by targeting this protein, finding a cure for cancer might be more feasible. Learn more »

Why Does this Perfume Smell Like Gas?

In a recent survey, 20% of drivers said they were hesitant about switching to electric vehicles because they’d miss the smell of gasoline. But thanks to this new invention, now the switch should be easy »

PlatoAi. Web3 Reimagined. Data Intelligence Amplified.
Click here to access.

Source: https://www.crowdability.com/article/why-does-this-perfume-smell-like-gas

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Crowdfunding

LEAKED: Startup Profits Revealed

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How much money could you potentially earn by investing in startups?

Well, if you’re a longtime reader here, you’ve seen countless studies on the returns you could have made in the private startup market.

But what about real-world numbers? In other words, actual profits that came from startup investments over long periods of time?

Well, that’s precisely what I want to show you today. You see, a well-known startup investor recently “leaked” his firm’s profit numbers from the past decade.

Today, I’ll share those numbers with you…

So you’ll be able to determine for yourself whether they live up to the hype.

Mutual Funds for Startups

Before we dive into the numbers, first let me explain where they came from.

Professional startup investors are called Venture Capitalists. And their firms are called Venture Capital Funds.

These funds are similar to mutual funds — but instead of investing in a portfolio of publicly traded stocks, they invest in a portfolio of startup companies.

One well-known venture fund is called Union Square Ventures (USV). Its offices are just around the corner from Crowdability’s headquarters in New York City.

USV was an early investor in startups including Tumblr (acquired by Yahoo for $1 billion) and Twitter (which now has a $56 billion market cap).

Profits Revealed

But Tumblr and Twitter are examples of its successful investments.

What about its not-so-successful ones? Or the ones where USV lost money?

Until recently, few people knew what the firm’s true overall returns looked like…

But a few days ago, the firm’s founder and Managing Partner, Fred Wilson, published a blog post including data on the firm’s REAL returns from the past decade.

According to Wilson, over the past 10 years, USV has earned an average of 58.6% per year.

That’s amazing. To put it in context, it’s nearly 10x higher than the stock market average of 6% per year, and it’s even higher than Warren Buffett’s average annual return of 20% per year.

And keep in mind: that figure includes USV’s winners and losers.

Not a Surprise!

To many people, these results were shocking…

But Matt and I weren’t surprised at all.

You see, we’ve been tracking and investing in this market for a long time. So we know how profitable it can be to invest in early-stage private startups.

For example, a couple of years ago, we reviewed a study from an investment research firm called Cambridge Associates. Cambridge advises some of the largest investors in the world — institutions like Harvard University and the Bill Gates Foundation.

In this study, Cambridge published the results on the long-term returns generated by early-stage startup investments. Simply put, it found that, over 25 years, a portfolio of startups generated an average return of 55% per year.

And as you can see, this study matches the real-world returns of USV almost perfectly!

Now It’s Your Turn to Get Started!

After reading this essay, you might be champing at the bit to dive into startup investing.

Well, our mission is to make that as easy — and as profitable — for you as possible.

Which is why Matt recently sat down for a 60-minute interview to reveal our proprietary strategy on Pre-IPO Cheat Codes.

As you’ll see here, these simple codes show you how to get access to the world’s next billion-dollar companies — while they’re still tiny (and cheap) startups.

Click here now to watch the full interview »

PlatoAi. Web3 Reimagined. Data Intelligence Amplified.
Click here to access.

Source: https://www.crowdability.com/article/leaked-startup-profits-revealed

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Crowdfunding

Changing UK Cybercrime Patterns Outlined in PPC Shield Report

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British individuals and businesses have been scammed for £5.7m in losses from just under 15,000 reported cybercrime incidents so far in 2021, research from click fraud prevention firm PPC Shield reveals. Malicious hacking, fraudulent use of social media accounts and email scams are the top methods, accounting for 43 per cent of all reported activity. Malware/viruses, personal hacking and extortion are also common.

The under-40 crowd has reported the most incidents this year with 5,000, suggesting scammers and hackers are predominantly targeting those used to juggling multiple social media accounts, email addresses and banking apps.

While corporate cybercrime only accounts for 10 per cent of reported incidents, the £1.9 million in damages are one-third of the total figure.

The effects take a mental toll. According to ONS data from the Crime Survey for England and Wales (CSEW), 72 per cent of victims said they had been emotionally affected by their experiences, with almost one third indicating a moderate to severe impact –  mostly annoyance and anger. Ten per cent said they experienced anxiety, depression, fear and sleep disruption.

Four out of five offences (81 per cent) were committed by an individual (not an organization) that was unknown to the victim. According to Google, malware is being used less than at any point since 2007, but phishing websites have grown by 750 per cent. One in three folks who lost money learned through their financial institution.

When non-cyber assisted fraud is factored in, UK authorities have so far received 253,736 reports totalling £1.2 billion in losses this year. They have issued public warnings of phishing scams conducted over the course of the COVID-19 pandemic, with an increase in fraudulent text and calls to mobile phones, as individuals posing as bank employees, HMRC and even the NHS charging for fake COVID tests and track and trace.

PlatoAi. Web3 Reimagined. Data Intelligence Amplified.
Click here to access.

Source: https://www.crowdfundinsider.com/2021/07/178444-changing-uk-cybercrime-patterns-outlined-in-ppc-shield-report/

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Crowdfunding

Changing UK Cybercrime Patterns Outlined in PPC Shield Report

Published

on

British individuals and businesses have been scammed for £5.7m in losses from just under 15,000 reported cybercrime incidents so far in 2021, research from click fraud prevention firm PPC Shield reveals. Malicious hacking, fraudulent use of social media accounts and email scams are the top methods, accounting for 43 per cent of all reported activity. Malware/viruses, personal hacking and extortion are also common.

The under-40 crowd has reported the most incidents this year with 5,000, suggesting scammers and hackers are predominantly targeting those used to juggling multiple social media accounts, email addresses and banking apps.

While corporate cybercrime only accounts for 10 per cent of reported incidents, the £1.9 million in damages are one-third of the total figure.

The effects take a mental toll. According to ONS data from the Crime Survey for England and Wales (CSEW), 72 per cent of victims said they had been emotionally affected by their experiences, with almost one third indicating a moderate to severe impact –  mostly annoyance and anger. Ten per cent said they experienced anxiety, depression, fear and sleep disruption.

Four out of five offences (81 per cent) were committed by an individual (not an organization) that was unknown to the victim. According to Google, malware is being used less than at any point since 2007, but phishing websites have grown by 750 per cent. One in three folks who lost money learned through their financial institution.

When non-cyber assisted fraud is factored in, UK authorities have so far received 253,736 reports totalling £1.2 billion in losses this year. They have issued public warnings of phishing scams conducted over the course of the COVID-19 pandemic, with an increase in fraudulent text and calls to mobile phones, as individuals posing as bank employees, HMRC and even the NHS charging for fake COVID tests and track and trace.

PlatoAi. Web3 Reimagined. Data Intelligence Amplified.
Click here to access.

Source: https://www.crowdfundinsider.com/2021/07/178444-changing-uk-cybercrime-patterns-outlined-in-ppc-shield-report/

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