Phil Libin, cofounder and CEO of Evernote, recently asked himself that question.
“My company, Evernote, recently raised a round of funding that valued the business at a little more than $1 billion,” writes Libin in Inc. magazine.
“One billion dollars is a big number, so a natural way to think about the valuation is to compare it with that of a well-known public company, such as The New York Times...
“I’ve been reading The New York Times every day for about 25 years. It’s not an exaggeration to say that I love The New York Times. Around the time of our financing, in the beginning of May 2012, The New York Times had a market cap of approximately $950 million. Does that mean Evernote is worth more than The New York Times? I was frankly a little shocked when I considered the question. It feels like there’s something wrong with the world to even ask.”
Libin goes on to note that although it’s natural for a Times fan like himself to use the venerable institution as a comparable, doing so isn’t necessarily realistic. The reason? Think public versus private. Publicly traded companies garner their valuations from the buying and selling decisions of numerous traders, whereas the value of private start-ups like Evernote hinges on the assessment one lead investor (the buyer) and the company itself (the seller). “That means that a private valuation is not a consensus at all, but rather the highest price to which a single buyer will agree,” Libin explains.
Then there’s the matter of upside: Private startups are often valued based on their growth potential, whereas mature companies typically “have relatively predictable levels of growth, so their valuations are heavily based on the current values of their businesses,” writes Libin.
“Plus,” he adds, “the opportunities to buy stock in that start-up may be hard to come by.”
Ultimately, Libin answers the question of his company’s valuation this way: “Evernote is not valued at $1 billion because our business is worth a billion dollars today but because there is a good chance that it will be worth $100 billion in a few years.
“So, is Evernote really worth more than The New York Times? It’s hard to give a precise answer for all the reasons above, so let me answer personally, and from the heart: not today. But if we work hard, keep making an excellent product that millions of users will fall in love with, and continue to build the business on the same trajectory we’ve been on for the past four years, I think we will eventually be worth much more. And our investors agree.”
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