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Comment by michaelchisari | Hacker News Reader

Given the history of economic valuation in this industry, I think being critical is more than justified.

"Given the history of economic valuation in this industry, I think being critical is more than justified."

Truthfully, being critical without knowing anything about Groupon's balance sheet is even more outlandish.

It was more a general statement about the industry, so I would like to address that point: Given that none of us here are privy to most of these company's balance sheets, and as pointed out before, given our industry's history of overvaluation, I think that being critical is a much more prudent response than optimism or blind trust.

NEA and Accel are both top-shelf VCs and have been the primary investors in Groupon thus far. They've both raised a number of funds and their ability to continue doing so most likely indicates that they have seen their investments appreciate and returned gains to their limited partners, and as a result, by definition, are not overvaluing their aggregate assets.

The latest entrant to their set of investors is Digital Sky, who at one point seemed to be naively inflating startup valuations when they took slices of Facebook and Zynga, but in retrospect seem nigh on clairvoyant: they were prescient enough to grab decent chunks of two firms that are likely IPO bound, in a time where tech IPOs are freakishly rare.

So what we're talking about is successful, proven experts at figuring out what companies are worth on the open market, and a random jab is supposed to invalidate that?

Accel Partners is obviously a top shelf group but they are still in the venture capital game. The industry in general relies on a minority of investments paying well enough to cover a majority of investments that never recoup. Since a decision to invest $10M into a company that later fails (or fails to recoup) qualifies as overvaluing an asset, Accel must be overvaluing some of their assets. In fact, on industry average, VC firms are in the business of overvaluing individual assets a majority of the time.

A critical word in what I said was aggregate assets, and a critical word in yours was outlandish.

Sure, the median venture investment will be overvalued, but for it to be outlandishly overvalued would imply that it's unreasonable even within its asset class. That's a strong claim to make with next to zero data given that people with a wealth of data and a track record of making sense of that type of data obviously disagree.

You think Facebook is overvalued, with no understanding of its financials or strategy.

You think Groupon is overvalued, with no understanding of its financials or strategy.

Do tell, is there anything out there you find undervalued, without an understanding of its financials or strategy?

It's so easy to be a cynic and appear brilliant.

I'd be interested to hear your thoughts on why Facebook is not overvalued, since you have as much of an understanding of it's financials and strategy as I do (assuming you don't have internal information, of course).

Facebook has stated that it's profits are in the "tens of millions" annually. Assuming, for ease of math, that translates to around $33 million a year, that puts their P/E at around 1000.

Their strategy seems to be a combination of ad space sales, and the sales of Facebook credits, although they've stated that the majority of their revenue comes from advertising. I'm very skeptical that advertising is the kind of business model that can meet that level of speculation.

Do you feel this is an incorrect set of conclusions, given the information culled from Facebook's representatives? Or do you feel that I've overlooked information about it's strategy or revenues? If you have information that conflicts, or adds to this, I'd be very interested, as I'm sure many people here would be.

oh but michael, you're forgetting: facebook has all those eyeballs!

http://www.google.com

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