If You're Not Making Money, You're Not Worth Money: 1,000 Valuations | Gregg Ficery, Ep 51

“If you're not making any money, you're not worth any money. I've had a company recently that had a very high opinion of their value, and they'd been around for seven years. They'd grown revenue nicely to several million, but never made any money. And they were in a dispute of sorts and wanted to justify a high value. And I'm like, look, I can't do it, especially in a litigation situation, put my reputation online to justify a number that is just unrealistic.”

“Revenue multiples are much less reliable than even EBITDA multiples. Your market multiples from a variety of somewhat dissimilar companies can be a wide range and they're often correlated by size too. Smaller companies are just generally not as mature. They're riskier, and they deserve higher discount rates on their forecasts. For several reasons, they're just not worth the same multiples as larger public companies.”

“The conflict on a lot of the founder's mind is in one breath, they say that they're worth a lot and they want to be worth when they raise money, but on the other side of the coin, they want their options to be priced low. Which one do you want? Fortunately those are often not correlated and investors understand that people want low-priced options, but they aren't going to hold you to that valuation for their funding.”

On current AI startup valuations

“It feels a little bit like the early .com days where there was pets.com. You just added .com to anything and .ai and expect to get a big valuation. There's a lot of exuberance or irrational exuberance, as Alan Greenspan used to say, in the AI world. So, I always try to bring a dose of sanity to the option pricing situation.”

“Transactions, there's only a couple of times in a business's life when people determine the outcome of the whole operation. And those tend to be at the beginning and at the end. When you buy in and when you sell. And unfortunately, if somebody works for many years and doesn't optimize the value that they should in those situations. It's really worth every penny of the investment in the process to be comfortable with that, and not make a mistake.”