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March 05, 2009


Peter Cranstone

Here's what continues to amaze me. They've (the VC's) pumped in $50m dollars into something that not only has no revenues but also has no chance of generating any earnings.

Lots of smart people can't figure out a revenue model other than the latest fad which is real time search. If real time search is to be the eventual winner then someone is going to have to attach a real revenue and earnings model to it. So far no one has been able to do that.

Why are VC's oblivious to earnings? Companies without earnings are basically insolvent and can only exist with money from the VC's. The IPO market is dead and M&A has dried up because the valuations (think number of shares outstanding in VC backed companies) are out of alignment with reality.

Here's what I see as the future... outstanding shares under 10m (so you can exit at a 5x or $50m) and the company is profitable and pays a very low dividend while it looks for an acquirer or continues to grow without further shareholder dilution.

If you cannot get to the above metrics then entrepreneurs and VC's alike are just working for a pay check.



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