37signals valuation tops $100 billion after bold VC investment (2009)

https://37signals.com/svn/posts/1941-press-release-37signals-valuation-tops-100-billion-after-bold-vc-investment

by lukashed • 13 years ago

300 105 13 years ago

37signals.com

snapoutofit2• 13 years ago

The irony :) [ref. twitter], however quite a bit more change than 1$ changed hands this time around.

anilshanbhag• 13 years ago

That formula deserves an award !

RossM• 13 years ago

(2009)

iancarroll• 13 years ago

This is from 2009, just saying.

z92• 13 years ago

Is there a way to add the year [2009] in the title?

I remember reading it back then. It's interesting how it's still relevant after all these years.

snapoutofit2• 13 years ago

Yeah, I caught that 2009 bit later into the post/parody :). Agreed it should be there in the title.

robryan• 13 years ago

Surely looking at a 10x return by now? :P

wslh• 13 years ago

In 2000 (dot-com peak) the value would be $ 1 trillion ;-)

lukashed• 13 years ago

Unfortunately I can't edit the title anymore, so a mod has to do it. Sorry for that, will remember it next time!

heedit• 13 years ago

More like $5.

trendoid2• 13 years ago

Can anyone explain why 2009 news being posted now? OP has some context in mind?

pearjuice2• 13 years ago

http://blogs.wsj.com/digits/2013/11/13/snapchat-spurned-3-bi...

http://www.theverge.com/2013/11/15/5106950/google-snapchat-4...

trendoid2• 13 years ago

thanks, funny I am being downvoted for not being up to date.

Killswitch• 13 years ago

Whether it's an article from 2009 or not, Jason has some good points.

bachback• 13 years ago

a timely repost.

======

value revenue profit

TWTR 25B$ 0.3B$ -0.08B$

AMZN 170B$ 61B$ -0.04B$

CRM 34B$ 3B$ -0.27B$

roasm• 13 years ago

Point taken, but I highly doubt most investors would roll their eyes at AMZN's numbers. It's not that they can't turn a profit; they're opting not to at this point.

walshemj• 13 years ago

Or taking advantage of tax loop holes around licensing to move the profit offshore - or "sorry Mr Cameron we are just a poor loss making company can we have a taxpayer hand out to subsidize our minimum wage workforce ;-)" even mad Nad aka nadine dorries can see through that one.

shaneofalltrad• 13 years ago

Amazon is playing the game to take over, not get the small wins. There will be a day when no other business model or even the thought to dream up one will exist because Amazon will sell everything for less, to your door on the same day. They will be a UPS/Walmart for everything under the moon. The future is dark.

notacoward2• 13 years ago

It's like a joke I heard about Icelandic banks a while ago. Neither of us have any money, but if we're banks I can sell you a cat for a billion dollars and you can sell me a dog for a billion dollars so that we're both billionaires. The way that insufficiently regulated banks and stock/commodity markets effectively allow certain people to create new money from nothing and then trade it for things of real value is only a tiny bit more subtle than that. Of course, sooner or later what happened in Iceland will happen anywhere that such things are allowed to occur.

riffraff• 13 years ago

is there something forbidding me and you to trade pets for billions of dollars, as opposed to banks ?

I think the problem appears when other people are buying shares of our pets as if they were actually worth billions.

anpalton• 13 years ago

The analogy is false. One of the problems with what Icelandic banks were doing was this:

"The rules prevent banks from posting their own debt as collateral (Central bank of Luxembourg). The three banks circumvented this rule by posting each other’s collateral at the CBL. This process is known as issuing ‘love letters’. However, CBL later restricted this type of funding. This, however, continued in other places such as Central Bank of Ireland (CBI)."

From: http://financetrain.com/how-icelandic-banks-funded-their-ris...

ye• 13 years ago

Taxes

akinity• 13 years ago

Trust. After you sell me your cat for an imaginarily large amount of currency, why continue to spend your gains or buy my imaginarily intensely valuable cat?

wallflower• 13 years ago

Michael Lewis' "Wall Street on the Tundra" is classic.

For the past few years, some large number of Icelanders engaged in the same disastrous speculation. With local interest rates at 15.5 percent and the krona rising, they decided the smart thing to do, when they wanted to buy something they couldn’t afford, was to borrow not kronur but yen and Swiss francs. They paid 3 percent interest on the yen and in the bargain made a bundle on the currency trade, as the krona kept rising. “The fishing guys pretty much discovered the trade and made it huge,” says Magnus. “But they made so much money on it that the financial stuff eventually overwhelmed the fish.” They made so much money on it that the trade spread from the fishing guys to their friends...

That was the biggest American financial lesson the Icelanders took to heart: the importance of buying as many assets as possible with borrowed money, as asset prices only rose. By 2007, Icelanders owned roughly 50 times more foreign assets than they had in 2002. They bought private jets and third homes in London and Copenhagen. They paid vast sums of money for services no one in Iceland had theretofore ever imagined wanting. “A guy had a birthday party, and he flew in Elton John for a million dollars to sing two songs,” the head of the Left-Green Movement, Steingrimur Sigfusson, tells me with fresh incredulity. “And apparently not very well.” They bought stakes in businesses they knew nothing about and told the people running them what to do—just like real American investment bankers!

http://www.vanityfair.com/politics/features/2009/04/iceland2...

antidaily• 13 years ago

I'd buy $SGNL.

wensing6• 13 years ago

Snapchat isn't being valued on revenues or potential monetization, but rather as a piece of someone else's (eg Facebook's) business model.

In the Steve Blank sense I don't think it's even right to call Snapchat or any of these "growth looking for a home" things "startup"s. They aren't actually searching for a business model. Their plan is to grow until they dock with the Deathstar.

wpietri7• 13 years ago

I don't have the reference handy, but somewhere Steve Blank basically says, "If there's another bubble, ignore all this advice. Building a real business only makes sense when the market is sane."

It's a stupid business to go into, in that the odds of success are really bad: low barrier to entry, lots of interest, lots of competitors, a winner-take-all game. But if you win the lottery you can get zillion-dollar offers from Zuck and feel like a genius.

Bubble 1.0 was filled with built-to-flip companies, and one of the things I like best about the Lean Startup movement is that it demands building an actual business. Sad to see that the pendulum might be swinging back some.

d0m• 13 years ago

Dunno, I firmly believe that once you have that many users, you're sitting on a gold-mine just waiting to be exploited.

sillysaurus2• 13 years ago

The only way I could look at SnapChat as a startup is that their market isn't consumers, it's Mark Zuckerberg plus a few people who are trying to compete with Facebook. We know that Facebook is willing to buy things perceived as threats to their business model, or perhaps to buy large sets of users they've failed to capture. It's a stupid business to go into, in that the odds of success are really bad: low barrier to entry, lots of interest, lots of competitors, a winner-take-all game. But if you win the lottery you can get zillion-dollar offers from Zuck and feel like a genius.

I wouldn't be so quick to dismiss the Instagram acquisition as crazy. Isn't Instagram now used by most teenagers, and sometimes preferred over fb?

sixQuarks3• 13 years ago

Are you sure Steve Blank said that? That doesn't seem like something he would say.

mkramlich5• 13 years ago

is that their market isn't consumers, it's Mark Zuckerberg plus a few people who are trying to compete with Facebook.

This.

My take is that SnapChat's valuation is driven mostly by the perception that it's a strong contender for acquisition by Facebook or the like.

Of course it's a separate issue as to whether that buyout makes sense in the long run, because, from what I've heard anyway, a big part of the attraction of SnapChat to teens is that it is NOT part of Facebook (or Twitter or G+). Because they of them not wanting parents/teachers to see stuff, not wanting Facebook intentionally or accidentally exposing their data later, and also just the desire to be "cool" like other cool kids (the temporary fad effect, always churning along with all ages, but at a faster rate with juveniles.), etc. All/most of that gets extinguished immediately, or, eventually after, an acquisition by Facebook.

jroseattle2• 13 years ago

I look at this from the angle of FB and GOOG, and seriously question if Snapchat is worth the acquisition. My gut tells me that patience will be rewarded.

The value to FB/GOOG is the audience -- the users they're trying to reach. It's not as if they couldn't replicate the technology to drive that type of service. The defensibility of Snapchat against competitors is the demographics of the user base.

I don't use Snapchat, nor does my wife. Or any other set of parents I know. But my kids do, as do their kids. Right now, for any teen/tween in our community, it's Snapchat and Instagram.

And if I acquire Snapchat, that gets me.......what? A service with no revenue and a user base that's naturally fickle. The only way I can justify this acquisition for FB or GOOG is if there is some long-term value from the user base. And I don't think the value is there.

If I'm GOOG or FB, I think I sit on Snapchat for as long as possible. I'm betting that Snapchat's value will never be more than it is right now.

joering23• 13 years ago

And if I acquire Snapchat, that gets me.......what?

It gets you solid 3-7 years of billions of eyeballs to monetize from, and nobody is better at monetizing than Google or Facebook.

There are 2 reasons why GOOG/FB are interested in picking Snapchat up. #1 user base #2 traffic. No other reasons.

#1. When FB strategist comes to Zuckerberg, he tells him: "listen this company is making dent in our traffic. If its continue the kids that abandon FB for Snaptchat will create $XX billions (sum A) of a hole in ads sales. So you need to go out and offer X% of sum A and pray they accept it.

#2. When FB ads vp come to Zuckerberg, he tells him: "listen, here are my ideas how we can serve ads to those billions of eyeballs. This will create $XX billions (sum B) of profits for Facebook. So you need to go out and offer X% of sum B and pray they accept it.

Thats it.

As of whether its a "startup" or not, I say it is exactly for the reasons other says its not: revenue (or lack of it). I don't think you can call a company "startup" only when they have a business model and or revenues. Snapchat through millions of uniques proved to the world they do solve some kind of problem, even if its as silly as flashing photos of a drunk teen for 5 seconds.

Edit: so the wisdom of the day would be: build a service for a huge user base that is important to facebook (youngsters), preferably on mobile (that is a future of computing/socializing).

mbesto• 13 years ago

Spot on. I provided another analogy to this concept in a comment awhile back:

It's not particularly strange if you break down the business models that dominate the SV ecosystem. These companies you speak of are merely procurement channels. Think of them as oil drills that suck up as many attention spans as physically possible. And largely they are all competing with each other to strike the next big oil well. Not unlike the oil industry they put massive amounts of capital into the discovery and refinement of such oil wells. The likes of Facebook, Google, etc are simply refineries who sell this attention (refined by analytics and insight) off to the Fords, Coca-Colas, etc of the world.[1]

[1]https://news.ycombinator.com/item?id=6400714

001sky2• 13 years ago

Their plan is to grow until they dock with the Deathstar.

many chased that model in 2002-2007, with google in mind

mkolodny• 13 years ago

Their plan is to grow until they dock with the Deathstar.

If that was their plan, then I would think that $3B would be enough for them to drop anchor.

As a zero-revenue company, I would only deny that payday if either:

1) I believed that my company had the potential to be its own Deathstar. 2) I disliked the company that made the offer so much that I had nightmares about them owning my company. 3) I cared more about my company than the money.

mathattack3• 13 years ago

How about "4 - they think they can get a better offer"?

wensing6• 13 years ago

4) I'm already so wealthy as a founder that's sold stock through multiple rounds of funding that I might as well wait for the $5B offer.

dustingetz• 13 years ago

4) he lost control and the board won't let him sell. Founder surely wants to sell. Unfortunately snapchat took $800M vc money, and his new VC bosses have completely different incentives to go for a long tail outcome. Which sucks because the founder is probably a lot more likely to get nothing than he is to get a huge exit and he knows it. Though as wengsing says he probably got a bunch of cash in prior rounds so maybe he doesn't really care.

mathattack3• 13 years ago

I'm thinking that if Spamchat is worth 3+ billion, then Instagram sold too cheap.

dannowatts• 13 years ago

this is amazing!! fucking hilarious.

maerF0x0• 13 years ago

omg this is so funny

codex• 13 years ago

Isn't it funny how VCs really invest in order to take advantage of the mania of later VCs or the public. Perhaps that's why founders found, too.

A noble calling it is not.

taylorhalliday• 13 years ago

I get that DHH doesn't believe in this whole trend of over-valuation of companies that don't make any cash, but doesn't this article give you the sense that they're a little bit jealous that they're not in that group?

alexmarcy• 13 years ago

I think their take is that the valuation is a BS metric. Sure it is a calculation based on the cash paid for the equity but that doesn't mean that someone is going to go in and pay the $X valuated for the 100% equity.

I imagine that 37 Signals is doing just fine with their revenues and all told will probably be laughing their way to the bank with their total lifetime value when all is said and done.

esmevane• 13 years ago

This article was written in 2009 by Jason Fried.

jarkko2• 13 years ago

As they say, profit doesn't make you happy but I'd rather cry in a Pagani Zonda.

linuxhansl• 13 years ago

The scary thing is that I believed it for a minute before I followed the link. Valuations have become so inflated, nothing is impossible.

thrush• 13 years ago

Is it possible that Snapchat is interested in slightly more than money? When a few 20-something year olds get valued at ~$3 Billion, I think it's fairly likely that they've made some money already, probably to the point that they will be set for life. It seems that Snapchat is an opportunity for them to leave their mark on the consumer software world.

Besides, Snapchat is certainly an outlier and I don't think that bubble indicators rely on outliers. A better indicator may be the new selfie app that Bieber backed, but I'm not sure that I'd lump the two together in the same category (Snapchat is many degrees of magnitude more popular and successful at acquiring a user base).

frankdenbow• 13 years ago

Exactly. They already cashed out 10mm each for the founders so makes sense to go for the win.

isalmon• 13 years ago

Jason probably spent too much time with guys from Vooza: http://vooza.com/videos/remote-working/

jarkko2• 13 years ago

Quite certainly considering that Matt was the first employee of 37signals.

nrao1234• 13 years ago

If 37signals put thier money where the mouth was & actually shorted the companies (FB & Twitter), they would be in a lot of pain now.

This original post by Jason Fried was making fun of Twitter which went from 1bn to 25bn. More background here: http://www.forbes.com/2009/10/15/venture-capital-software-te...

Another post from DHH said that the value of FB was not 33bn & it's now roughly 120BN http://37signals.com/svn/posts/2585-facebook-is-not-worth-33...

Not saying 25BN & 120BN are the "right" valuations but most people would agree that the prices that 37s made fun of seems like great deals. They could still go back to less than 1bn & 33bn (users leave, consumer trends change, get bored etc) but those are different risks not monetization risks that 37s is making fun off.

calinet6• 13 years ago

It would be insane to short any of these companies, because the perception is so far from reality; and it's perception driving the price, not reality. That's the point.

mdparker89• 13 years ago

The market isn't necessarily efficient at a given point in time. Just because the stocks are going up, doesn't mean the valuations represent the intrinsic value of the company.

Shorting is a dangerous strategy, especially if you feel the prices are delusional. "The market can stay irrational longer than you can stay solvent."

nrao1234• 13 years ago

Yes- agree with you. I think DHH/JF & 37s were not making as much fun of the actual valuation but the lack of monetization.

If we stretched the valuation analogy, it could be applicable to AMZN/Bezos as well- where there is always discussion on their lack of profits & nose bleed valuation. FYI - Bezos is an investor in 37signals.

I have lots if respect for Bezos, JF, DHH etc. I just think it's a little "unfair" (for lack of a better term) to make fun of companies before their monetization plans have kicked in.

paul_f• 13 years ago

No. You're missing the point. FB and TWTR have already made it. If you could, short the vast pool of VC-backed pointless startups in the space that have not IPO'd yet and you would make a fortune.

nrao1234• 13 years ago

Hmm- you may well be right. Because VC as an asset class have underperformed. But- you wouldn't have made a fortune shorting it. Maybe, even lost a little money but not much.

On the other hand, if you shorted USV/Sequoia/Benchmark's portfolios you would be hurting a lot.

kimar• 13 years ago

It's funny because it's true.

shaohua• 13 years ago

April fool

omonra• 13 years ago

Even though I'm tired of all the [Political / NSA / Women in Tech] discussions, posts like these make it worthwhile to check back in.

tzury• 13 years ago

If Facebook is worth X, and there is a raising service which generates x/40 of social traffic, then it will make sense for Facebook to evaluate the new kid as Facebook/40, or to say the least, the owners of the raising service will expect the offer to be at that rate.

If there is a bubble, the bubble is at Facebook and Twitter, and not at Instagram or Snapchat or Pinterest or any of those zillion-terabytes-daily-uploads services.

There were several articles recently telling how teens are away of Facebook, and for them, it shall be rather natural to try to stay the ultimate social hub.

pyrrhotech• 13 years ago

The VC industry is largely a scam. VC funds underperform passive investment in the S&P 500, and greatly underperform similar risk asset classes such as the Russel 2000.

paul3• 13 years ago

It's funny that people here think he's making fun of snapchat, but the article is from 2009. He was making fun of facebook's $6.5b valuation (or maybe it was $10b). The fact that he was completely wrong (fb is now over $100b) doesn't stop people here from thinking that there's wisdom in this nonsensical post.

wensing6• 13 years ago

Is there any way to know with any degree of confidence whether something is a flash in the pan or a viable company? It isn't just about growth is it?

paul3• 13 years ago

It helps to know the founders and internal metrics, which nobody here does. I honestly don't know if Snapchat is worth $3B or not, but I certainly wouldn't dismiss them.

outside1234• 13 years ago

its not nonsensical. there is truth in pointing out that a VC valuation does not equate to a true valuation - either in the upside or downside.

csomar• 13 years ago

Facebook generates $8bn of revenue per year. I guess those who valued Facebook at $6bn at that time were quite wise.

You can't say anything about the current investors. Only the future will tell if it's a wise investment.

kansface2• 13 years ago

What mysterious property is a "true valuation" and how does one measure it?

nrao1234• 13 years ago

Thanks Paul for this. I posted this in the comment thread an hour ago making the same exact point but was lost in the comment weeds. I guess PG'a secret Algo of surfacing sensible comments to the top is working. https://news.ycombinator.com/item?id=6745220

larrys• 13 years ago

"The fact that he was completely wrong"

In making any business decision you are also looking at the downside vs. the upside.

On "Let's Make a Deal" [1] there was always "door number two" or three and you had to decide if you were going to take the chance or not. Now it's one thing to pass up some "Furniture from Broyhill" and another thing to pass up a billion dollars or any large sum.

Now most of us don't know what "door number two" was so it's hard to say. So of course people are going to comment on how they view the situation from what they do know.

[1] http://en.wikipedia.org/wiki/Let%27s_Make_a_Deal

mkramlich5• 13 years ago

... and here's where you receive a flood of scathing email from teen/twentyish brogrammers and 37Signals fans across the planet (sent via Gmail, of course), saying basically, "Oh like what would you know about Facebook anyway?" Er. Wait a minute. :-)

A little less meta: I think your point is valid but I think the OA's satire was an illustration of a valid criticism of a kind of valuation model that's driven more by herd mentality, and where anything giveth ephemerally can also be taketh away ephemerally if the pendulum swings back to fundamentals-driven before the bubbled company in question can build up real profits to start justifying its currently frothy 'maybe someday' valuation. Facebook, like Google, has been an exceptional case in several ways, it could be argued. But exceptions don't invalidate the wisdom of a general rule of thumb.

paul3• 13 years ago

Actually, exceptions are where all of the money is made in this business. The top 1% of startups produce the majority of the returns, which is why we all want to invest in the next Google or Facebook, even if we're not 100% certain that it will in fact be the next Google or Facebook.

pearjuice2• 13 years ago

I wasn't thinking he's making fun of snapchat but this is obviously (re)posted with the context of snapchat its recent valuations in mind.

You are completely missing the point of the article, too. It is referring to the bubble of air which valuations are based on.

coldtea4• 13 years ago

He was making fun of facebook's $6.5b valuation (or maybe it was $10b). The fact that he was completely wrong (fb is now over $100b) doesn't stop people here from thinking that there's wisdom in this nonsensical post

Errm, how does the fact that FB is "now over $100b" prove that he was "completely wrong"?

How about: he was right that such valuations are crazy when FB was at $6.5b, and he is even more right now, as $100b is even more crazy.

It's not like FB somehow PROVED it deserved to be valuated as $6.5 at that time -- it just bubbled up even more in the stock market since.

If his premise was that such stock valuations are BS, then that's even more ammunition to his argument.

37signals valuation tops $100 billion after bold VC investment (2009)

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