I see your point now. I respectfully suggest that the valuation of a company is intended to represent the discounted summation of future cashflow, and in a highly competitive marketplace that valuation is intended to reach the summation of those market place participants who estimate the cash flows to be the highest (without presumably deliberately intending a loss to themselves)
I cannot see any other way to price it (well lots of ways to estimate future cashflow and even define cashflow) but there is not some agreed amount of discount for risk out there. Yes people will always want such a discount, and can walk away. But the discount does not start with a figure and work downwards. It's only a discount in hindsight as it were.
Imagine if you will a hotel in NY that has one room, 100 USD per night and is going to be knocked down in 100 days time. I would only expect to pay a maximum of 10000 USD to buy the hotel. Any more would be obviously foolish. Present value plays some part but mostly estimated occupancy drives the expected cashflow.
But also if I demanded a discount for the risk that the hotel might not pay back my investment, there is likely to be some other investor who has a different view on the Hotel scene in NY. Especially for the "ultimate in boutique experiences". No one will pay more than 10,000 but how close we come is (should be?) determined entirely by investors estimates.
I do not think that the main driver of valuation is that between VCs and the founders. That is admin work. The driver of the price paid by a VC is how much other VCs are willing to pay instead.
That seems a good thing to me.
Thank you for the comments - good to think these through.
I cannot see any other way to price it (well lots of ways to estimate future cashflow and even define cashflow) but there is not some agreed amount of discount for risk out there. Yes people will always want such a discount, and can walk away. But the discount does not start with a figure and work downwards. It's only a discount in hindsight as it were.
Imagine if you will a hotel in NY that has one room, 100 USD per night and is going to be knocked down in 100 days time. I would only expect to pay a maximum of 10000 USD to buy the hotel. Any more would be obviously foolish. Present value plays some part but mostly estimated occupancy drives the expected cashflow.
But also if I demanded a discount for the risk that the hotel might not pay back my investment, there is likely to be some other investor who has a different view on the Hotel scene in NY. Especially for the "ultimate in boutique experiences". No one will pay more than 10,000 but how close we come is (should be?) determined entirely by investors estimates.
I do not think that the main driver of valuation is that between VCs and the founders. That is admin work. The driver of the price paid by a VC is how much other VCs are willing to pay instead.
That seems a good thing to me.
Thank you for the comments - good to think these through.