tag:blogger.com,1999:blog-8152901575140311047.post7971037015158228680..comments2024-03-28T12:49:46.624-04:00Comments on Musings on Markets: Billion-dollar Tech Babies: A Blessing of Unicorns or a Parcel of Hogs?Aswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-8152901575140311047.post-90496776395093386072015-07-08T16:17:42.849-04:002015-07-08T16:17:42.849-04:00Sir,
what's your take on the recent crash in ...Sir,<br /> what's your take on the recent crash in Chinese market?<br /><br />I am amazed to know that 80%-85% of the total market participant comprise of the retail investor who are likely to be non diversified & which obviously explains the 150% rally in the current year.so when the economy is growing at 7% its mathematically impossible to explain where the market where but then why have no one have questioned the big valuation gap between intrinsic value & market price isn't it like 2000 Tech bubble kind of scenario.I really want to know why it always takes so long for the market to come to their senses, aren't this market covered by Analyst, haven't they taken lessons out from other market crash what's the missing link.Is it because pricing is more prevalent than valuing? <br /><br /> Well now the Chinese Govt intervening by changing the rules of the game in the middle of the game which appear to be adding fuel to fire by suspending trading of 1200 companies ,asking brokerage house to buy shares & prohibiting major share holder by suspending trading for 6 months. do you think such measure would save the day? <br />what would be the near and long term consequence it terms Risk premium ,credibility of market,Investor confidence .<br /><br />RanjitAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-71153759666637095272015-07-06T07:40:40.918-04:002015-07-06T07:40:40.918-04:00Hi Mr. Damodaran
Brilliant piece!
One comment- I...Hi Mr. Damodaran<br /><br />Brilliant piece!<br /><br />One comment- In the section titled ‘Investor Optionality’ you have rightly attempted to unbundle the fundamental value of the business and the value of the put option. However, it appears to me that principle has not been fully captured in the pre-money computation. To elaborate, in your illustration, out of the total investment of US100mn, US$25.116mn is for the value of the put option. Thus, only the remaining amount of US$74.884mn represents an investment to acquire a 10% stake in the business. Consequently, in my view, the pre-money valuation in the instant case should be USD748.84mn less US$74.884 i.e. 673.9556mn instead of $648.84mn. <br /><br />Would like to hear you views Mr. Damodaran. <br /><br />Regards<br />N.SubramanianAnonymoushttps://www.blogger.com/profile/05857323880624658675noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-57812137923535029122015-06-18T22:21:30.320-04:002015-06-18T22:21:30.320-04:00Hi Mr. Damodaran,
Just curious on whether there ...Hi Mr. Damodaran, <br /><br />Just curious on whether there are any new company valuations in the horizon? Your insight and journey through Yahoo, Vale and Lukoil recently have been ver interesting. <br /><br />Thanks<br />TimAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-50946690124740946802015-06-16T19:50:07.602-04:002015-06-16T19:50:07.602-04:00Hi Professor,
I am currently going through your c...Hi Professor,<br /><br />I am currently going through your course slides and questions (session 7 - Estimating cash flows) and question 5 deals with calculating net capex. The issue I am having is that issuing shares to pay for acquisitions shouldn't included as part of net capex that goes into FCFF calculation should it? <br /><br />Obviously it would dilute your FCFE as there would be more shares outstanding but I don't understand the rationale behind including share issuance for acquisition to be included in net capex calc for FCFF.<br /><br />Not sure if this is right forum to ask!Anonymoushttps://www.blogger.com/profile/12809867699588672989noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-59038852241639706652015-06-13T21:13:26.288-04:002015-06-13T21:13:26.288-04:00"assume further that there is a 90% chance of..."assume further that there is a 90% chance of the IPO occurring in one year."<br /><br />Is this a realistic assumption? To the contrary, it appears that most unicorns are less likely to go public in the next year (or even years).John Honovichhttps://www.blogger.com/profile/03271257224763036045noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-68166902358740214632015-06-13T02:36:06.328-04:002015-06-13T02:36:06.328-04:00I think your last paragraph sums it all, because t...I think your last paragraph sums it all, because that is the only thing that matters. We cannot do any predictions, and if we do we fail in that anyway. In investing what works is analyzing value against price, and if price is right it will yield returns. VC or anyone who is interested in investing should do just that. Most of these guys, however, do speculation. When both capital seekers and capital suppliers get into speculation game, whoever has the gift of the gab would win momentarily. In the end, business profits would determine value of the business. <br /><br />Consistent profits from VC investment is a myth because they are big time speculators. This seems to be proven by that article you linked from WSJ.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-82779369664148942252015-06-11T12:04:38.274-04:002015-06-11T12:04:38.274-04:00I’m going to start with a basic assumption that th...I’m going to start with a basic assumption that this only really matters for the middle 60% of cases. 10-20% will continue to grow magnificently that never needs downside protection, and another 20-30% will fail beyond the coverage of the downside protection. <br /><br />With that being said I think there are some advantages to these forms of downside protection that are worth mentioning.<br /><br />• For the VCs it is about “Closing the deal”: <br />o By inflating the valuation VCs are stroking egos (both those of the founders and the current board most of whom are investors in on earlier rounds). Which given the commoditisation of capital makes things like this a necessary “acquisition cost”<br />o Trying to get an accurate handle on valuation is difficult where the business model is still “fluid”. In some cases it is just easier for everyone to swallow to give the new investor downside protection.<br /><br />• Founders have believed in their business since the beginning. Therefore, selling downside protection is much more palpable then taking any further dilution given the cash-requirement to get to the next stage is relatively fixed.Penniless_Prophethttps://www.blogger.com/profile/06029952219916856734noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-77524757088478645772015-06-11T03:01:37.195-04:002015-06-11T03:01:37.195-04:00fantastic - It's is indeed a new perspective t...fantastic - It's is indeed a new perspective to valuation - the value of all the bells and whistles.<br /><br />Professor<br /><br />i would also urge you to think about how to value drags and tags and "syndication" (that allows for multiple investors to be be treated as one or separate depending upon what the situation demands).<br /><br />This has the effect of offering chunks of liquidity at one go and also has the downside of a stranded whale should liquidity reverse (if liquidity dries up or the business model has serious risks - then exit becomes difficult).<br /><br />I am starting to visualize VCs as "fuel tank" providers (who fill in entire tank fuls of fuel and attach themselves to the vehicle) as opposed to public markets that only fill fuel to an existing tank. Oversimplification may be, but I am not able to fathom how this will affect liqudity/exit dyanmics and hence valuation - since this entire process is reflexive.<br />Varadhahttps://www.blogger.com/profile/02546300910849990655noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-45290797467582441932015-06-11T02:05:29.493-04:002015-06-11T02:05:29.493-04:00Pretend I've invested $950mm in a company with...Pretend I've invested $950mm in a company with $50mm in value (and $500mm is the value of the downside protection). Then the company has had a post money Enterprise Value of $1bn, while the equity value is only $500mm. The remainder of the value is an implicit security issued by the company to the investor. Theoretically, the pro forma ownership would then be based on $50/$500mm and $450/$500mm. The remaining value has just been "purchased" by the investor. Anonymousnoreply@blogger.com