[claytonjy]

I checked my notes and 20-30x seems was the target next-round multiple for the A's and B's I talked to. I get that earlier companies get a higher multiple based on growth, but I don't know if 2-3x the multiple for top public co's is reasonable or not.

[Retric]

It’s not worth investing in private companies unless their long term growth outlook is significantly outperforming public ones. PEG on the other hand is by necessity a backward looking metric.

That self selection means they really should have a higher multiple even if you judge them using the same metrics. IE if you have a public company growing by 20% per year and a private one growing by 20% per year you should only invest in the private one of it’s at a significant discount or it’s growth will likely continue for significantly longer than the public one.

[ComputerGuru]

You forgot the one exception: or you expect the private company to go public after your investment.

[Retric]

That reduces but doesn’t eliminate this preference. A private company going public in 1 months is still one month where you have less liquidity than investing in a public company for that month. Everything else being equal liquidity makes public companies more attractive.

[ComputerGuru]

Well, most people would be betting that by investing pre-IPO they can cash out upon or shortly after IPO with nice gains. Of course none of that is guaranteed.

[Retric]

You still need to find someone to take the other side of that investment.

Taking a company public is generally profitable because of people’s liquidity preference. Companies will sell shares to an investment bank directly before an IPO as both a form of payment and a hedge. It’s a very nuanced transaction that might otherwise seem dumb on the surface.

[ComputerGuru]

Thanks for the additional info. I feel like I need to read up on this some more to make more sense of all the conflicting bits I have accumulated.