(LINK) The Great Public Market Reckoning – AVC

The Great Public Market Reckoning – AVC:

I believe that we have seen a narrative in the late stage private markets that as software is eating the world (real estate, music, exercise, transportation), every company should be valued as a software company at 10x revenues or more.

And that narrative is now falling apart.

If the product is software and thus can produce software gross margins (75% or greater), then it should be valued as a software company.

If the product is something else and cannot produce software gross margins then it needs to be valued like other similar businesses with similar margins, but maybe at some premium to recognize the leverage it can get through software.

But we have not been doing it that way in the late-stage private markets for the last five years.

I think we may start now that the public markets are showing us how.

In general private market pricing is tough but there are some guidelines. However what happens is that along the way valuations just get silly – founders and VC’s are both to blame.

To put it even more simply than Dan and Fred – the silliness is coming to an end.

Expect Southeast Asia to feel it next.

(LINK) WeWork and Counterfeit Capitalism

Good – this part:

Time to Restore Honest Capitalism

Part of what’s going on with WeWork is that monopolies and private equity have eliminated profitable opportunities for investment, which is why the Federal Reserve is increasingly powerless. Republicans like Mitt Romney are noticing that excess capital is harmful. Capitalism itself is breaking down in the face of business models that are simply organized around loss-making and endless access to the small number of (largely) men who can enable unlimited access to the capital markets.

Across the West, the basic problem of a corrupted productive process is becoming a quiet crisis. The reason is simple. The people that do the work in organizations are increasingly excluded from the decision-making about the work. That is why Boeing is losing its ability to build planes, why we can’t build infrastructure, and why New York City is on the verge of disaster. And the cherry on top is investors pouring money into enterprises that aren’t even speculative, but are purely loss-making, because they find a destructive personality like Adam Neumann compelling.

That’s why Neumann was given an unlimited charge card and a license to abuse his employees. As it turns out, the S-1 was correct; he was pivotal to WeWork, because WeWork only exists due to his ability to get money from investors.

It’s a good thing Neumann’s stepped down. And if we restore laws against predatory pricing and centralized financial control, the entire counterfeit capitalism model will go away. We can then get back to the business of making and selling things to each other without engaging in celebrated cases of fraud and abuse under the guise of ‘quirkiness.’

WeWork and Counterfeit Capitalism