You don't talk about rational during valuations of startups. It's all paper money and you put a number that pleases both of the parties. For example, you can give your friend $100 bill to start a company for leaf blowing and ask him to sign an agreement that you own 10th millionth of his company. What you just did in nutshell is value his company as a billion dollar business. This would just keep snowballing in next series rounds until Facebook is forced to buys it to protect its turf or they IPO it. After the exit, your company would falter and eventually evaporate because everybody is out the door after cashing out. Loosers are be "real" investors (i.e pension companies aka "your 401K"). I'm realizing the startups are game of eventual transfer of money from pension funds and 401Ks to smart aggressive get-rich-now personality types, at least 90% of the time.
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You don't talk about rational during valuations of startups. It's all paper money and you put a number that pleases both of the parties. For example, you can give your friend $100 bill to start a company for leaf blowing and ask him to sign an agreement that you own 10th millionth of his company. What you just did in nutshell is value his company as a billion dollar business. This would just keep snowballing in next series rounds until Facebook is forced to buys it to protect its turf or they IPO it. After the exit, your company would falter and eventually evaporate because everybody is out the door after cashing out. Loosers are be "real" investors (i.e pension companies aka "your 401K"). I'm realizing the startups are game of eventual transfer of money from pension funds and 401Ks to smart aggressive get-rich-now personality types, at least 90% of the time.