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“Can you believe they just got bought for $300M!” Jeroen, my cofounder and VP Engineering, said to me. Jeroen, who was usually pretty mild mannered, was a little pissed off.
Before I could answer, Jeroen continued with his rant. “They haven’t even announced a product yet, and they have no revenue! It makes no sense.”
The company Jeroen was referring to was started by ex-coworkers of ours. They weren’t in the same market we were in. They were using similar technology to what we were developing, but they were focused on a different industry.
Jeroen wasn’t done. “We’ve announced over 50 products and our valuation isn’t close to $300M. This makes no sense.” The he paused and said, “And we have lots of customers and sales!”
“Let’s look at who bought them,” I said as calmly as I could. “It’s a big multinational firm. Let’s look up what their market cap is.”
We went over to my computer. “No wonder!” I said. “Their market cap is $300B. They can afford to overpay!”
The value of your company is determined by the market.
Jeroen didn’t get it, yet.
“Think about it,” I said. “What percentage is $300M of $300B?”
