[devinmontgomery]

>Remember: These valuations aren't for what a company is currently worth. Otherwise, there's no point to investment. They valuations are for where they see the company going, and more probably, growing past.

Nit pick: a valuation is what a company is currently worth. That current worth us just based on anticipated future cash flows.

[hnnewguy]

>Nit pick:

This isn't a nit-pick, it's a very important point that is sometimes overlooked by the less financially-inclined.

So often people will argue for some obscene valuation based on the fact that the company is growing rapidly. Well, the whole point of a valuation model is to capture these elements and estimate a price you're willing to pay today for all that future growth.

Of course, that's way easier said than done, especially in a fast growing start-up. But these are sophisticated investors, who are trying not to leave any money on the table.

[rokhayakebe]

VC: "I am going to buy these goods at $1,000 because that is what they will be worth in the future."

You: "Great, how much will you sell them for when they are worth that $1000"

VC: "$2000"

You: "And who will buy it at that price when they worth only half"

VC: "Let Wall Street worry about that"

[devinmontgomery]

It's more like:

VC: "I am going to buy these goods at $1,000 today because I expect to be able to sell them for $1,100 in one year".

How they arrive at the $1,100 is based on the amount of risk there is and the return they could get on a zero-risk investment.

Seriously, finance seemed like mumbo jumbo to me to too before I learned about it. But it's actually pretty interesting. This is the calculation for present value.