While reading a blog post on what Microsoft can learn from the iPad, I was struck by the following point - "The way Wall Street works is fairly simple — albeit, not always reasonable or fair. What drives stock prices forward are new endeavors. Stock prices rise when investors predict fantastic growth ahead."
Microsoft has had a great rollout with Windows 7 and Wall Street says, "meh". Apple has an iPad and everyone is excited (even Wall Street).
Likewise in a startup, your valuation is not based on where you are now, but where you will be in the future. If prospective funders seem to hold your company in low value - it may be that they do not understand your market, or they may not understand your product, etc. It could just as well be that they very well understand, and that is why they have valued you as they did.
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