1/ Buffett's mentor, Benjamin Graham said:
"In the short-run, the stock market is a voting machine. But, in the long-run, it is a weighing machine."
Short term: Hype. Narrative.
Long term: Revenue. Earnings. Margins.
The same is true in the venture market....
"In the short-run, the stock market is a voting machine. But, in the long-run, it is a weighing machine."
Short term: Hype. Narrative.

Long term: Revenue. Earnings. Margins.

The same is true in the venture market....
2/ Over the last few years, we've seen eye-popping valuations from startups where the results don't add up.
Startups that had raised tens of millions of dollars, had huge teams...
But behind the curtain, their P&L was fucked. YEARS in to operations: tiny revenue, huge expenses.
Startups that had raised tens of millions of dollars, had huge teams...
But behind the curtain, their P&L was fucked. YEARS in to operations: tiny revenue, huge expenses.
3/ But that's all changing...
"X competitor raised at Y" is no longer enough to cement your valuation.
Startups need serious traction, revenue, and profitable unit economics, to raise.
"X competitor raised at Y" is no longer enough to cement your valuation.
Startups need serious traction, revenue, and profitable unit economics, to raise.
4/ And if they can't raise, they are going to need to liquidate or sell, which is where the dreaded weighing machine comes in...
5/ We often see founders get attached to venture valuations, forgetting that ultimately, when they sell the whole business, the weighing machine is ALL that matters.
Your buyer has to have a way to pay themselves back, either via strategic synergy, earnings, or future sale.
Your buyer has to have a way to pay themselves back, either via strategic synergy, earnings, or future sale.
6/ In this new world, your venture valuation is irrelevant.
VC valuations are basically made up. They have all sorts of complex financial instruments to protect themselves, and they are indexing.
Today:
Results matter.
Traction matters.
Revenue matters.
Margins matter.
VC valuations are basically made up. They have all sorts of complex financial instruments to protect themselves, and they are indexing.
Today:
Results matter.
Traction matters.
Revenue matters.
Margins matter.
7/ At the end of the day, the numbers have to work.
The weighing machine has arrived

The weighing machine has arrived


