Value is tied to vision. Tied really well.
(In a larger company) If someone is willing to pay 20 times current revenues as a valuation for a high-end, post-revenue software company (with no profit), then something is wrong. The piranha fish feed in a frenzy when there’s blood in the water, but ultimately vision will outlast overinflation. It’s way more valuable than a valuation.
What I’m trying to say is that I would rather be working for an undervalued company with vision than an overvalued one with nothing but a lot of cash.
Talking about value: (In a smaller company—$1m-2m revenue annually) 5 times revenue is often a very fair valuation. In seeking to nail down a valuation with a company at this size, it's a lot about the team. If the team were to leave or resign, then the patents in the software can often be irrelevant.
CEO of TriNet (a $400M company) said, "All of our businesses are ultimately about relationships."
Don’t gloss over that somewhat cliched quote. It’s important. Do you have deep relationships in your business, your team, or your life? Relationships deeper than social media connections or “just business” contacts.
Last thing while we’re on this topic, don't take dumb money. Take money from people who can share why you're doing it, what you're doing, and that'll be there when times are tough.
If the transaction is purely financial, you'll be in trouble when there are distressing interludes and all-time lows. As a child, do you remember sulking when things didn’t go your way? There are sulking businessmen all over the world. Sulkers need to be put in the corner because they’ll affect the other children who are having fun.
Business is not linear or cookie-cutter defined. It’s a roller coaster ride with loops, drops, and excitement. Find investors and teammates who enjoy the biggest roller coasters in the world and keep coming back for more.
(photo via matt coats)