Market Caps when there is no Market

Recently, I wrote about the crazy valuations of companies in our current Internet 2.0 bubble, arguing that it was not Sarbox, poorly considered as that piece of legislation might be, which was leading to the dearth of IPOs, but instead simple supply and demand effects where there was so much private demand for these tech companies that they did not need to go to the public markets for capital.

As always, everything is a self portrait. The Epicurian Dealmaker puts it very well:

So, therefore, one should firmly embed notions such as the “market capitalization” of short squeeze scams such as CYNK in pulsating neon scare quotes, so the great unwashed and their blinkered guides in the media do not take them as anything other than arithmetic exercises. So, also, one should not take reported implied market values from the technology economy, such as Series D or pre-IPO round investments by professional investors in vaporware startups, as anything other than the revealed price preferences of that particular investor in that particular company. The fact that Fidelity invested $100 million for a 1% stake in the illiquid equity of Doofr-rama does not make a strong case that Doofr-rama’s “value” is $10 billion. All it really tells you is Fidelity desperately wanted 1% of Doofr-rama. If you want to know why, you better go ask Fidelity.

From this perspective, one should not ask why Uber is valued at whatever it is valued, one should ask why the last round of investors in Uber wanted it so badly.