Jeff  Carter

The Facebook IPO has brought valuations of start ups front and center. Angel investors and VC’s think about valuation constantly. Rarely is there a magic black box algorithm that you can run numbers through and pop out with a number that is exact. Valuation of companies is still an art form.

Facebook’s IPO stumbled for a variety of reasons. Not to go too deeply in it, but all three parties to executing the IPO fumbled. Facebook($FB), Morgan Stanley($MS) and NASDAQ ($NDAQ). They also went public in a bear market, so the company got no market mojo to lift their shares. Facebook is still a great company.

Interestingly, the rest of the social media space fared poorly as well. Zynga($ZNGA), LinkedIN($LNKD), Yelp($YELP), and Groupon($GRPN) all lost ground. Does this mean they were over valued?
FB Chart

FB data by YCharts

I don’t think so. I believe the market is smarter than any one person, any one analyst. All public information is priced into the shares of public companies. The market is rational on a macro level. On a micro level, there are brief snippets of time where public information isn’t reflected in the price. That’s where arbitrage opportunities are available to anyone quick enough to seize them. Believe me, it’s not the average investor. Computers sop up those nickels really quickly.

But what about companies that aren’t public? Start ups. Paul Graham runs Y Combinator, a successful incubator in California. His basic points were these:

Jeff Carter

Jeffrey Carter is an independent speculator. He has been trading since 1988. His blog site, Points and Figures was named by Minyanville as one of The 20 Most Influential Blogs in Financial Media.