Seeing so much confusion about Clubhouse and consumer valuations. Here’s the thing. Companies that connect people, and have people generate content can become incredibly valuable. Like 20-30B (twitter snapchat whatsapp) and way beyond (FB, Instagram, Youtube)
Any earlier VC valuation of a consumer company isn’t a “current value” based on revenues and multiples but is a bet on the potential it can become. For example many consumer networks get to very large scale before investing in monetization at all
The other side of consumer networks is if they don’t work and get to scale, they may not be very valuable at all. There isn’t a ton of IP that gets built, it instead depends on usage. We have seen many fall to outcomes far below capital raised, if not winddowns entirely
So at any stage along the way, VCs come in and are willing to underwrite some risk. They have to decide how much cash they are willing to risk (could go to zero even) vs what portion of the company they want to own if it works or really works
Founders and teams of course always want to minimize dilution. If you think you can create a $20b company, every percentage point is $200m in value you are selling for much cheaper today. Obviously risk adjusted, this is a dream, but hey it’s happened.
So if a VC is willing to invest $10m into a company and risking losing it if the network doesn’t create real value, but is happy owning 10% now (will dilute somewhat over time - new financings and/or option pool) then you get a valuation of $100m.
Sure that sounds like a big number today, but as I said it is either a really small underpricing, or way too high if value doesn’t get realized.
I have led / seen / been parts of rounds in this range and missed out on many more. And I have seen the cases of this being radically underpriced (yay value for team and investors and world over time) and way overpriced (damn, value not realized, people lost money)
Turns out all that really matters is creating something that people love, use, use more, keep using, and love using so much they bring more people in. Well that + finding a way to generate revenue over time (ads or direct payments from customers tend to be the best models)
And fwiw, I personally have been very lucky to get to try Clubhouse early and have had more fun lurking, listening, and occasionally talking to people there than on many social products in the last while. These are many of my friends and peeps and it has brought us together.
I hope more people get to experience it and really experience the same feelings of joy, community, and meeting new people that I have. Thanks @pdavison @rohanseth. Keep it up!
