It looks like they only had $600k in annual revenue (don’t even think it was ARR). Also doesn’t look like their founder had any successful exits. From the couple of startups I worked at, I think we had at least $10mm in ARR when we hit the half billion valuation. What gives?
Venture valuations can be most simply understood as: potential exit value (reward) * probability of reaching that value (risk).<p>In this case the potential exit was big: owning checkout for the web is a multi-multi-$B business.<p>The risks, however, were also big. This was a highly competitive market, with lots of complicated technical and GTM problems to solve. But, investors seemed to believe in their vision + chutzpah + ability to execute, hence they discounted the risk and gave them a rich valuation.<p>As it turns out, the risks were very real! They successfully hired a big, seemingly-experienced team (something many companies struggle to do) but failed to make enough progress to justify their valuation, i.e., de-risk the business and demonstrate a higher probability of achieving a big exit to potential next-round investors. The product never worked well (actually 502 hard-crashed on launch day) and their team got bloated and slow. Their GTM strategy was fundamentally flawed (horrible CAC/LTV on small merchants) and the founder spent like a mad man. This wasn’t foreseen but perhaps should have been especially by the pros at Stripe<p>Fast lived a short, insane life and will quickly fade into obscurity versus the more infamous WeWork and Theranos implosions. But I think it’s a more relevant cautionary tale: Fast was backed by “proper” Valley institutions (Index, Stripe, etc.), was a pure software business, and from the outside had all the trappings of hypergrowth success. Lots to be learned by investors, employees, and founders here.
It is because venture funding has become a legal Ponzi scheme. Seed investors make money by convincing Series A investors to follow and buy them out. Series A does the samr to Series B, etc. The final suckers are ordinary people whose investment/retirement funds buy stock when the company goes public. Enough companies start to create actual value throughout the process to justify the scheme. And this is the reason why, when someone boasts that his startup is valued at X, I ask about annual revenue first.
Really quite infuriating as a founder hearing stories of nonsense projects getting handsomely funded while meeting with time-wasting VCs that insist on taking less-than-zero risks on you.<p>Can't help but think the famous VC concept of "pattern matching" is a euphemism for something more sinister.
Hype in the VC community.<p>I’m not familiar how Fast actually did their fundraising but it’s not impossible to get pre-emptive terms sheets from VCs when you have barely met them or shared any data.<p>Once you get a term sheet or close to one, this sometimes starts the hypetrain where VCs beg you to meet them and consider them for an investment. At that point it becomes a competition between the VCs who win the deal. The competition will often balloon the valuation since investors care more about ownership % than valuation.<p>It sounds crazy to invest in a company with no real numbers or traction, but VCs have seen that it works sometimes when the company actually delivers on the story they told when fundraising.<p>Also amount of ARR or other revenue matters less than the speed it is growing. $10M with stable growth over the years is worse than $5M growing 3-10x a year.
Because everything is crazy expensive currently. We‘re in a bubble. Look at the valuation of WD-40, Bitcoin or Shopify for example. WD-40 had a 500k annual revenue and is valued at 2.6 billion. Their free cash flow is only about 100k, so they would need 26 years to buy all stocks back at the current valuation assuming no growth in earnings.<p>As another example look at the current PE ratio of the companies in the S&P 500: <a href="https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart" rel="nofollow">https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-ea...</a>. This shows that prices are unusually high compared to earnings.
Valuations are not based on earnings, valuations are based on ”how much is the next fool willing to pay for this”.<p>See also: bitcoin, meme stocks, etc
Good question. It is also the exact same question I have been asking about Clubhouse's valuation which ever since my comment [0] it is somehow valued at $4B with nothing to justify it.<p>If we find out that there are huge operating costs and little revenue for this valuation then I would be not surprised to see it close down faster than Fast.<p>[0] <a href="https://news.ycombinator.com/item?id=25883362" rel="nofollow">https://news.ycombinator.com/item?id=25883362</a>
the (late)-2020 to 2021 euphoria environment is partially to blame too.<p>Going to be interesting to see how the other companies that raised big A and B rounds in the past one to two years fare.
tl;dr: Seems like the folks at Stripe didn't do very good diligence and others followed them in.<p>I believe this really boils down to "Why did Stripe's investment arm value at $150M for an A they lead and <i>then</i> go on to co-lead a B at $500M?". Honestly, it mostly sounds like bad diligence by the folks at Stripe. The co-lead for the B was Addition One, a newish firm that <i>also</i> had invested in one of Stripe's latest rounds, so they may have just been co-investing with Stripe from a "oh yeah, we're all in on Stripe".<p>Edit: or looking at the timeline, perhaps Addition closed this investment in Fast in January 2021 to get in on Stripe's Series H in May 2021.
Look up the list of investors for every such startup implosion (Theranos, WeWork, Fast, Quibi). It is always going to be a new firm or someone from outside the valley without much tech experience who doesn't have the expertise to do the necessary due diligence. Such firms will always be taken for a ride by slick talking founders and flashy PowerPoint decks.