As seen at Le Web 2014, companies such as Uber are being valued at millions of dollars. Is this viable and can other startups expect the same evaluation?
At LeWeb 2008, Travis Kalanick got stuck in the streets of Paris because of exceptional snow. Looking desperately for a taxi, he thought about using his cellphone to get one quickly. Uber was born!
Eight years later, the success of Uber has created a snowball effect in the web startup field. For the first session of LeWeb 2014, Fred Wilson, the influent managing partner of Union Square Ventures, has been asked about the astronomical expecting valuation of Uber.
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After having raised 1.2 billion dollars in summer, to reach a global valuation of 18,2 billion dollars, Uber is going back to investors at the end of this year and the experts consider that it’s IPO, expected in a couple of years will propel Uber at a 40 - 100 billion dollar valuation.
Uber is not an exception in this sector. A few hours later on the same stage, Peter Pham was sharing his 200 million dollar fundraising experience. Those dizzying numbers have become part of the every day life of entrepreneurs and venture capitalists in the Silicon Valley and worldwide.
Seen from the outside, that looks like a new technological bubble. An overvaluation mechanism that might end up with a big collapse and important losses.
But listening to Fred Wilson this potential valuation is not crazy. In fact, looking at the economic reputation, the revenues of Uber, the business model and the evolution perspectives of the service, a wise investor could legitimately invest money in Uber.
Looking at the figures, Uber might generate a 10 billion dollar revenue at the end of the year. About 20% of this turnover will be captured by the company, the 80% goes to the drivers. If we consider the fact that their charges are quite limited, the benefits are still high and the profitability of the company should be maintained for years. That give us a careful ratio of 1 to 20 between the annual company revenue (2 billion dollars) and the low expected stock valuation (40 billion dollars).
At this point the investor can bet on the fact that the revenu will increase and the profitability will continue for 20 years. The 1 to 20 ratio seems rational!
Fred Wilson ended his intervention about viral valorisation by adding that we are not facing a frightening technological bubble, but the valuation system should evolve, taking in account the exceptional performance of the sector at the moment.
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