Swapping Stamps

Posted on February 3, 2022. Filed under: Uncategorized |

These days it seems that the majority of private financings I read about disclose the valuation of the round in question. It hasn’t always been that way. In fact, it almost never happened until 4 or 5 years ago. Without public valuation disclosures, the market of would-be talent and downstream capital in tech was deeply tuned to the brand stamp of whatever venture firm(s) financed a given company. Simply getting money was a news story and the TechCrunch headline was who gave it to you. Your VC’s brand power was a proxy for your potential enterprise value…and so it was really helpful, at a tactical level, to be backed by X, Y, Z firms.

Of course, today, that dynamic still exists, but it feels like the value of the VC stamp has declined as the enterprise value of the company has become a more prevalent public focal point. Now when I read about a company, I can put a number on present value and extrapolate out plausible future value from there…I couldn’t do that before valuations became public. The Techcrunch headline today is “Company X raises $200M at a $2B valuation”…oh and by the way…at the bottom of the article, the money came from firm X. That’s really different than it was. The market is now anchored around a signal that’s more directly measurable. Is it an optimization if that round was led by a tier 1 VC vs a spray and pray allocator like Tiger vs Goldman Sachs? Of course…but the headline, and the thing that cements a company’s position in the pecking order of market-perceived success is the number, not the name.

I’d argue that one of the most brilliant things Andreesen Horowitz did when they entered the market in like 2010, was not so subtly making their brand synonymous with high valuations. They came with high conviction, big checks, and if you got one, people just assumed the valuation was immense and that you had made it. And founders, of course, wanted to be perceived as having made it, so they sought A16Z’s money. Did people think they were good pickers? To an extent…but it was “A16Z = big number” before the market was comfortable publishing actual big numbers. They developed a new kind of stamp that approximated where the market’s attention is currently anchored today.

So anyway, I just find it interesting. Benchmark is still a stamp…and so forth…but weirdly Softbank’s high number has come to be more of one? In a multi-iteration game, and what recent months of turbulence suggest is that, the big number stamps may prove to be less enduring than the firm level stamps. We’ll see. I haven’t decided if the trend toward public disclosure of valuations accelerated the narrative around private capital as a commodity, or perhaps it’s simply a reflection of that narrative taking hold…but one way or another the number seems to have taken marketshare from the name…for now.