OK, so maybe I am stuck on this whole issue of overpaying for rapid growth start-ups, but it really does hurt my business (seeding tech-enabled service companies, see Jerusalem Capital ). When market gets silly, my LPs (limited partners) expect "better" results, entrepreneurs expect higher valuations, and I get an inferiority complex...
Take a look at the news concerning the acquisition way back when of Skype by Ebay for over $4 billion. As Dan Primack says in his recent posting (here), "In other words, eBay has finally figured out that Skype isn’t worth $4.1 billion."
Yes, the deal never made sense. The only explanation was that Meg used Skype once, saw how easy they made VoIP (and I say that as co-founder and former Chairman of Delta Three, according to Jeff Pulver "the first commercial VoIP provider") and told her M&A team, "get me that." For Ebay $4 billion was not so much to pay, especially as only $1.5 billion was in cash, the rest in shares. The rest of us were left holding the bag, because we know the real value of Skype's "community."
Nu, so does that mean that Google will admit that they overpaid for YouTube ? No, they will not come out and say that, but I am sure down the line they will take an accounting charge to reflect that overpayment (which could be a doozer, based on existing and potential lawsuits).
Again, the rest of us in the ecosystem are left trying to build real sustainable businesses out of all this hype. Challenging, but fun. Of course, I (and my LPs) would not mind a 115X return on our money, at least some of the time...;-)
Until then, please only approach us with real business models!