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. They can also negotiate to receive additional free shares if a subsequent round’s valuation is less favorable.
So, all these numbers are made-up. To me, this is great news. In a way, it shows that a company’s valuation is becoming less about money ROI and more about holistic ROI. Meaning, rather than giving a company its value based on how much money it could make, it seems investors are incorporating other potential values into their calculations. Like the company’s impact on society. And the value of the company as it relates to other emerging companies. Most of the decacorns are fundamental game-changers: Airbnb, Dropbox, Uber. Their value seems to be intrinsically rooted in their ability to change the world as we know it. I’m happy to see that idealistic, socially connective companies are getting high made-up valuations.
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