Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
There’s a famous old post going around Twitter this week by entrepreneur and developer David Heinemeier Hansson (@DHH). DHH is a critic of certain elements of the startup world, especially wild valuations. This entry from him is, in my view, a classic of the genre.
The post in question is titled “Facebook is not worth $33,000,000,000,” and was written back in 2010.
You can already imagine who might find the post irksome — namely folks who are in the business of putting capital into high-growth companies. This sort of snark, though not precisely recent, is a good example of how posts like the Facebook entry are read on Twitter.
If you take a moment to actually read DHH’s blog, however, you’ll find that the first part of his argument is that selling a minute slice of a company at a high price, thus “revaluing” the company at a new, stratospheric valuation, is a little silly. DHH didn’t like that by selling a few percentage points of itself, Facebook’s worth was pegged at $33 billion. We’ve seen some similarly-small-dollar, high-valuation rounds recently that could be scooted into the same bucket.
It’s a somewhat fair point.
But what struck me this morning while re-reading the DHH piece was that his second two points are useful rubrics for framing the modern, post-unicorn era. DHH wrote that profits matter, companies are ultimately valued on them, and that companies that don’t scale financial results as they add customers (or users) aren’t great.
Alex Wilhelm
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