Jason Fried, co-founder of Basecamp (formerly 37Signals) a Chicago-based software company, recently wrote an opinion article stating that valuations have become the new startup sport and that he opted out. He writes, “My not knowing how much our company is worth doesn’t affect our business on a daily basis. I know our revenue and our profit. I know how fast we respond to customer service inquiries and how many people signed up for Basecamp last week. Those are real numbers to me. A valuation is an invented number that ebbs and flows on the basis of how much someone else thinks you are worth. It is nothing more than a distraction.” Heritage Ventures believes otherwise.
There are many simplistic reasons to value a company: to resolve a shareholder dispute, determining tax obligations or commencing a sale process. We believe that the more complex reason is that it helps executives understand whether a company is reaching its’ fullest potential and the direction the company is heading. A company may have 30% year-over-year growth rates but does that mean the company will be valued as high as a competitor? Can the company do better?
The company may also need quick access to external sources of funding to take advantage of new market opportunities, expand product lines or acquire new businesses. All investors will want to know the company’s valuation.
Even Warren Buffet says “If business schools could offer just one course, it would not be on stock trading, the efficient market hypothesis or modern portfolio theory. Rather, B-schools should be encouraging students to learn the boring, but critically important, discipline of business valuation.”
Heritage Ventures: We are Silicon Valley.
For more information about Heritage Ventures and how we share in your risk, please contact either Cameron Ackbury at Cameron@HeritageVentures.com or Chris Wheeler at ChrisWheeler@HeritageVentures.com How Much is Our Company Worth? I Don’t Want to Know, by Jason Fried, Inc. 500 September 2015, page 162