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[turtlehurricane]

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[Phinnaeus Gage]

GoCoin, founded by Brock Pierce, was able to obtain $500,000 USD of VC capital from their two(?) bedroom home/office above a restaurant in Singapore, with 95% of its customer base residing in the US. Surely, BitPay is worth six times that.

Visit this thread to see how I broke down GoCoin's evaluation: https://bitcointalk.org/index.php?topic=602198.msg6666101#msg6666101

[BitCoinDream]

BitPay raising $30 million of capital, gives itself a $160 million valuation which is ridiculous - an article by The Cryptocurrency Times http://www.usacryptocoins.com/thecryptocurrencytimes/uncategorized/bitpay-raising-30-million-of-capital-gives-itself-a-160-million-valuation-which-is-ridiculous/

This is how black money becomes white.

[QuestionAuthority]

BitPay raising $30 million of capital, gives itself a $160 million valuation which is ridiculous - an article by The Cryptocurrency Times http://www.usacryptocoins.com/thecryptocurrencytimes/uncategorized/bitpay-raising-30-million-of-capital-gives-itself-a-160-million-valuation-which-is-ridiculous/

This is how black money becomes white.

Exactly right. Investments are for more than just percentage of profit.

[franky1]

OP has no clue about business

imagine it this way a shop has stock, they sell that stock for fiat. the fiat is then used to buy more stock. they sell that stock for fiat.
the fiat is then used to buy more stock. they sell that stock for fiat. the fiat is then used to buy more stock. they sell that stock for fiat. the fiat is then used to buy more stock. they sell that stock for fiat. the fiat is then used to buy more stock. they sell that stock for fiat.

in between, the shop, makes a small percentage profit.
this seems to be the extent of the op's overview of business..
well, the shop is not valuated at just the yearly profit, but at the cost of the building they have, the costs of branding, and labour and other things

yes you got that right, if you wanted to buy bitpay you dont just pay $10 for their domain, $2k for a few scripts of website code. if you want the staff to stay, you have to pay, if you want the servers to stay you have to pay and if you want the offices to stay, you have to pay.

then lets get back to the 'stocks'

bitpay doesnt just grab person A's bitcoin, sell it and give person A fiat, meaning they have no holdings. bitpay needs reserves.

so imagine bitpay has $30million in bank account waiting to pay out to person A within 3-5 days. if they did not have this reserve, it would take 3-5 days to get funds from exchanges into their account. and then take another 3-5 days send out to person A, meaning 6-10 business days. so fiat reserves are needed to reduce delays and reduce costs.
and once bitay pays Person A fiat from the reserves, the money from exchanges reimburses the reserve.

now lets talk about bitcoin reserves. to get to offer the best prices, bitpay has access to not one exchange but multiple exchanges.
bitpay does not direct deposit into an exchange. they have reserves already in the exchange ready to instantly sell. so heres how it works
bitpay display to merchants customers a address which is a bitpay cold wallet. they show a price valuation based on the current price from the best exchange value there is. so as soon as a merchants customer deposits their bitcoin. bitpay can instantly sell some coin for FIAT. thus avoiding the 3-6 preconfirms that exchanges need when depositing, because the funds are already inside (the reserve). then bitpay at their own leisure can reinburse that reserve as the reimbursement of reserve does not mind waiting 3-6 confirms.

now then lets put this all together
aswell as labour, infrastructure, brand and other assets
bitpay also has bank reserves and multiple bitcoin exchange reserves..

its not all about the 1% profit.

[IIOII]

That valuation is indeed very high atm. Fundamentally it's not justified.

On the other hand it can be seen as a speculation on future value. That value could indeed be very high, so the investment might be worth it.

I think there's a lot of venture capital pouring into bitcoin businesses right now. Possibly much more than these businesses really need. Many of these businesses will no longer exist five years from now, but some might be extremely successful. Payment providers and exchanges are among those that offer a quite reliable business model with solid participation in a rising bitcoin adoption. So they are an alternative to a direct bitcoin investment - one that is less exposed to the price risk alone. This might explain why there is much interest by VC.

[franky1]

carrying on from before.

imagine 2013 bitpay had
$1m in the bank reserve so they are able to handle upto $1m of transactions in the same 6-10 day reserve recovery period they also need
2200btc in coinbase (~$1m value)
2200btc in bitstamp (~$1m value)
2200btc in kraken (~$1m value)
2200btc in btc-e (~$1m value)

all so that merchants will get the best price and get it in the customers banks in 3-5 days as oppose to 6-10 days

now 2014 they have $30mill capital (bank reserves)
meaning to be able to honour upto $30mill in the same reserve recovery period they have
66600btc in coinbase (~$30m value)
66600btc in bitstamp (~$30m value)
66600btc in kraken (~$30m value)
66600btc in btc-e (~$30m value)
=$30mill bank reserve(capital) and upto $120mill in assets (bitcoins)

without reserves this is what will happen
merchant customer see's a price for equating to 1btc($440), deposits that to bitpay. bitpay waits 10 minutes to confirm the transaction is legit.
in that time the bitcoin price on the exchange has moved($435). bitpay then throw the coins into an exchange. adding a fee to make sure they get confirmed ASAP. an hour later the exchange adds 0.9999btc to th balance. during that hour the bitcoin price has moved again ($430). they sell the bitcoin giving them $429.15 (after tx and exchange trade fee is deducted)

so its been 1 hour 10 minutes and what should have been $440 is now only $429.15.
now the exchange will only send fiat to the KYC'd bank account (meaning bitpays account)
3-5 days later bitpay receive this, and then send this on to the intended merchants account.
3-5days later yo guessed it.

the merchant is contacting bitpay to ask why its taken 6-10 days and also why hav they only received $429.15..

well now i hope you understand the reason for reserves and that if bitpay wanted to sell their business, then capital AND assets (reserves) need to be included

[jonald_fyookball]

GoCoin, founded by Brock Pierce, was able to obtain $500,000 USD of VC capital from their two(?) bedroom home/office above a restaurant in Singapore, with 95% of its customer base residing in the US. Surely, BitPay is worth six times that.

Visit this thread to see how I broke down GoCoin's evaluation: https://bitcointalk.org/index.php?topic=602198.msg6666101#msg6666101

6x = 3mil.

They are claiming 160mil.

We saw what happened with FB ipo with similar p/e.

[Fundmanager23]

I think the valuation is ridiculously low. How quickly could bitpay be replicated both technology, management team, brand, and  trust?
Valuation should be $250 million.

[bluemeanie1]

BitPay raising $30 million of capital, gives itself a $160 million valuation which is ridiculous - an article by The Cryptocurrency Times http://www.usacryptocoins.com/thecryptocurrencytimes/uncategorized/bitpay-raising-30-million-of-capital-gives-itself-a-160-million-valuation-which-is-ridiculous/

I just bought this for $100.  I now declare it's worth $500.  This means I'm a brilliant businessman.



-bm

[ranlo]

I think the valuation is ridiculously low. How quickly could bitpay be replicated both technology, management team, brand, and  trust?
Valuation should be $250 million.

I really hope this is a joke.

We need a lot more information to know what Bitpay's real valuation should be though. Everyone here is just speculating. We don't know their financials, their p&l statements, or anything else we need to understand how the business is running. This information would help get a more solid view as to what the company is really worth.

[jonald_fyookball]

I think the valuation is ridiculously low. How quickly could bitpay be replicated both technology, management team, brand, and  trust?
Valuation should be $250 million.

How quickly?

Within 5 years you might have 8 companies with those assets.
5 years is forever in Bitcion.

But you know what, $160mil or $250mil makes sense IF we are betting on massive adoption
in the next 3-5 years, because then one could argue that their current
revenues and profits could be multiplied many times.

And I think that is what they are factoring into their valuation.

[BittBurger]

Is this the "big" announcement BitPay alluded to on their Twitter with "to the moon!" ?

[maurya78]

Please, bitpay is a pioneer in a virgin market that will likely be worth billions of dollars
Maybe fundamentally too high, but certainly not if you look at how valley VCs gauge potential and allocate capital

[jonald_fyookball]

Please, bitpay is a pioneer in a virgin market that will likely be worth billions of dollars
Maybe fundamentally too high, but certainly not if you look at how valley VCs gauge potential and allocate capital

True, but the barrier to entry is low.  It will possibly be a very crowded space.  Does bitpay have anything innovative?

[bryant.coleman]

Another biased news article, either written under the influence of drugs or bribes from Paypal. If Master / Visa is worth some $200 billion, I don't see any reason why Bitpay can't be worth one-thousandth of that amount.

[Beliathon]

BitPay raising $30 million of capital, gives itself a $160 million valuation which is ridiculous - an article by The Cryptocurrency Times http://www.usacryptocoins.com/thecryptocurrencytimes/uncategorized/bitpay-raising-30-million-of-capital-gives-itself-a-160-million-valuation-which-is-ridiculous/

I just bought this for $100.  I now declare it's worth $500.  This means I'm a brilliant businessman.

-bm

This is exactly what happened, and is still happening, with Bitcoin. Every single day, people pay $500 for something (1 BTC) that less than a year ago, everyone agreed was worth ~$100.

Many assets appreciate and depreciate with time. Automobiles depreciate. Fiat scrip depreciates. Art appreciates. Cryptocurrency appreciates. That's what makes these things sound investments.

[bluemeanie1]

BitPay raising $30 million of capital, gives itself a $160 million valuation which is ridiculous - an article by The Cryptocurrency Times http://www.usacryptocoins.com/thecryptocurrencytimes/uncategorized/bitpay-raising-30-million-of-capital-gives-itself-a-160-million-valuation-which-is-ridiculous/

I just bought this for $100.  I now declare it's worth $500.  This means I'm a brilliant businessman.

-bm

This is exactly what happened, and is still happening, with Bitcoin. Every single day, people pay $500 for something (1 BTC) that less than a year ago, everyone agreed was worth ~$100.

Many assets appreciate and depreciate with time. Automobiles depreciate. Fiat scrip depreciates. Art appreciates. Cryptocurrency appreciates. That's what makes these things sound investments.

you're missing something here.  When something appreciates, it's MARKET VALUE has increased.  I can't just declare it to be more valuable.

-bm

[ranlo]

BitPay raising $30 million of capital, gives itself a $160 million valuation which is ridiculous - an article by The Cryptocurrency Times http://www.usacryptocoins.com/thecryptocurrencytimes/uncategorized/bitpay-raising-30-million-of-capital-gives-itself-a-160-million-valuation-which-is-ridiculous/

I just bought this for $100.  I now declare it's worth $500.  This means I'm a brilliant businessman.

-bm

This is exactly what happened, and is still happening, with Bitcoin. Every single day, people pay $500 for something (1 BTC) that less than a year ago, everyone agreed was worth ~$100.

Many assets appreciate and depreciate with time. Automobiles depreciate. Fiat scrip depreciates. Art appreciates. Cryptocurrency appreciates. That's what makes these things sound investments.

you're missing something here.  When something appreciates, it's MARKET VALUE has increased.  I can't just declare it to be more valuable.

-bm

Honestly, this is no different than the companies around here that are making, say $500 in profit in 6 months and IPO at a valuation of $10m and still raise it all. People are getting stupider and assume that everything related to cryptos are automatically trillion-dollar companies just because we're talking about Bitcoin. As long as people keep making stupid decisions, companies will continue to be overvalued like this.

[Sindelar1938]

The valuation looks a little frothy
The SV VC's discounting a very, very optimistic future for bitcoin by the looks of it
How defensible is bitpay's tech? Does anybody have any insight on this?

[MrBitHero]

I'll add some comments about business valuation.

Say I've got a money-tree (like a goldmine with a certain reserve of gold) that pays out $100 every year for 10 years. How much would you pay for it? Well, the lifetime revenue is $1000. But you wouldn't pay $1000, because of the time value of money. $100 in 1900 is worth only $2 today due to inflation of prices, for example. When you have $100 today and accrue interest for 10 years, it's worth a lot more than getting $100 in 10 years. So there's some 'discount rate' every year, so the money-tree might only be worth say $750. The rate depends on many factors, it's just an example.

This is roughly how companies are valued. You look at revenue streams and discount them over some time and then pay for that, minus some risk factor that the company fails. In addition, you may pay for various assets, but sometimes they can be a small factor. After all, assets are only valuable to generate revenue which you already calculate, or to sell. But some assets aren't very valuable when sold. (e.g. if Bitpay or bitcoin fails, its bitcoin payment processing software or its bitcoins will have little resale value. So for Bitpay, revenues are the big factor).

So let's look at Bitpay, they've recently stated in a developer presentation that they process about 1-2m a day. Say 500m a year. They also made public they grow at about 10% a month, which is equal to Coinbase, Blockchain.info and Multibit for example, so it's a very reasonable number. We can also say they take 1% as fees like Coinbase does.

So their revenues are 5m annually, today, and their growth rate is 3x annually. So for the next 5 years that's 5m, 15m, 45m, 135m, 405m.

See now where the 160m valuation comes from? Of course, this is a very rough calculation. For example, they make less than 1% in fees to be exact, it's probably closer to 0.75%. Their 3x growth per year is of course impossible to continue indefinitely, it may slow to 2x or even 1.5x at some point. And I haven't applied the discount rate yet (which isn't huge, by the way), nor the risk that bitcoin fails. (but then, it is *venture* capital). If you value a company on its 10-year revenue stream like is often done, 160m is a very realistic rate.

Now, let's be clear, Bitpay didn't make this valuation by itself. You've got a number of silicon valley / entrepreneurial legends turned investors (top-ranking ones) who offered to buy close to 20% for 30m. THAT is the valuation. These VCs made the valuation. Now you can say it's ridiculous without any arguments, but if I'd have to guess, I'd probably side with the VCs. They're self-made. Not by a single stroke of luck, but by series of successful companies and successful investments. You can be assured they've done their homework.

[spring.yu]

I think there's a lot of venture capital pouring into bitcoin businesses right now. Possibly much more than these businesses really need. Many of these businesses will no longer exist five years from now, but some might be extremely successful. Payment providers and exchanges are among those that offer a quite reliable business model with solid participation in a rising bitcoin adoption. So they are an alternative to a direct bitcoin investment - one that is less exposed to the price risk alone. This might explain why there is much interest by VC.

[bryant.coleman]

The valuation looks a little frothy

More than 20,000 clients are using the BitPay service, with turnover almost doubling every month. Look at the basics before you people accuse them of over-valuing themselves.

[bluemeanie1]

BitPay raising $30 million of capital, gives itself a $160 million valuation which is ridiculous - an article by The Cryptocurrency Times http://www.usacryptocoins.com/thecryptocurrencytimes/uncategorized/bitpay-raising-30-million-of-capital-gives-itself-a-160-million-valuation-which-is-ridiculous/

I just bought this for $100.  I now declare it's worth $500.  This means I'm a brilliant businessman.

-bm

This is exactly what happened, and is still happening, with Bitcoin. Every single day, people pay $500 for something (1 BTC) that less than a year ago, everyone agreed was worth ~$100.

Many assets appreciate and depreciate with time. Automobiles depreciate. Fiat scrip depreciates. Art appreciates. Cryptocurrency appreciates. That's what makes these things sound investments.

you're missing something here.  When something appreciates, it's MARKET VALUE has increased.  I can't just declare it to be more valuable.

-bm

Honestly, this is no different than the companies around here that are making, say $500 in profit in 6 months and IPO at a valuation of $10m and still raise it all. People are getting stupider and assume that everything related to cryptos are automatically trillion-dollar companies just because we're talking about Bitcoin. As long as people keep making stupid decisions, companies will continue to be overvalued like this.

dumb money quickly turns to dumb ideas.

I'd rather invest in Elvis collector plates than some of these outfits I've seen lately.

-bm

[JamesSchofield]

BitPay raising $30 million of capital, gives itself a $160 million valuation which is ridiculous - an article by The Cryptocurrency Times http://www.usacryptocoins.com/thecryptocurrencytimes/uncategorized/bitpay-raising-30-million-of-capital-gives-itself-a-160-million-valuation-which-is-ridiculous/

They must be making a fair bit of money

[DeathAndTaxes]

you're missing something here.  When something appreciates, it's MARKET VALUE has increased.  I can't just declare it to be more valuable.

A declared value is a requirement for selling additional stock.  The new investors are putting in $30M.  What does their $30M buy them? 50% of the company, 1% of the company, 99% of the company?  Without some valuation for the company it becomes impossible to issue additional stock. 

A valuation is part of any offering.  If investors buy in then they are getting 15.7% of the company in exchange for $30M in capital.  As for the market deciding well that will happen.  If the offering is successful then the market (investors buying shares) are agreeing with the valuation, if it isn't then they are indicating the valuation is too high.  Either way it adds to price discovery.

[gannicus]

In a few years when this shit makes some IPO valuated at 5~10 bln USD 160 mln USD will be trully ridiculous

[PeterReid]

I think it will one day be worth the Moon for sure, You heard it here first!

[blackhull]

I wonder how those valuation models the VCs used deal with BTC and other cryptocurrency volatility in their pricing (aren't revenues generated in those coins?)... Sorry but does risk of 50% drawdown in currency not put some kind of cap on the multiple they pay? Then again, 50% appreciation could make the valuation look cheap. But you just don't know. Also, what kind of assumptions does it make about liquidity (or is that the whole point between the relatively huge chunk of capital - another possible explanation)?

Somebody on this thread or another said something to the tune of "well maybe they're paying for potential growth, and not just basing a price off fundamental value." This is actually exactly how VCs operate - the idea has been around awhile, most recently Nassim Taleb described it as "harvesting optionality," but in the past it's been called "asymmetric returns" and other things. Basically, potential for asymmetric returns + diversified portfolio leads to a portfolio with a more favorable risk/return profile than the regular, overall market. In theory. (<-- big emphasis..) This blog post talks about it for anybody interested: http://25iq.com/2014/04/05/the-best-venture-capitalists-harvest-optionality-dealing-with-risk-uncertainty-and-ignorance/

[hdbuck]

BitPay raising $30 million of capital, gives itself a $160 million valuation which is ridiculous - an article by The Cryptocurrency Times http://www.usacryptocoins.com/thecryptocurrencytimes/uncategorized/bitpay-raising-30-million-of-capital-gives-itself-a-160-million-valuation-which-is-ridiculous/

This is how black money becomes white.

Exactly right. Investments are for more than just percentage of profit.

may i also add that this is how QE is efficiently infiltrating Bitcoin's blooming economy & at the end, banks win.

[bluemeanie1]

BitPay raising $30 million of capital, gives itself a $160 million valuation which is ridiculous - an article by The Cryptocurrency Times http://www.usacryptocoins.com/thecryptocurrencytimes/uncategorized/bitpay-raising-30-million-of-capital-gives-itself-a-160-million-valuation-which-is-ridiculous/

This is how black money becomes white.

Exactly right. Investments are for more than just percentage of profit.

may i also add that this is how QE is efficiently infiltrating Bitcoin's blooming economy & at the end, banks win.

until the banks run out of quantities to ease.

-bm

[TrailingComet]

Has this fund raise been confirmed yet?
Don't see it covered yet in TechCrunch

[counter]

I'm okay with it as long as it doesn't go the the heads of bears..  As long as I don't start seeing flaming rocketships and trains flying to the moon, haha.  Does seem to be a high estimate but who knows, we could be saying that was a low estimate in the future.

[Phinnaeus Gage]

I'll add some comments about business valuation.

Say I've got a money-tree (like a goldmine with a certain reserve of gold) that pays out $100 every year for 10 years. How much would you pay for it? Well, the lifetime revenue is $1000. But you wouldn't pay $1000, because of the time value of money. $100 in 1900 is worth only $2 today due to inflation of prices, for example. When you have $100 today and accrue interest for 10 years, it's worth a lot more than getting $100 in 10 years. So there's some 'discount rate' every year, so the money-tree might only be worth say $750. The rate depends on many factors, it's just an example.

This is roughly how companies are valued. You look at revenue streams and discount them over some time and then pay for that, minus some risk factor that the company fails. In addition, you may pay for various assets, but sometimes they can be a small factor. After all, assets are only valuable to generate revenue which you already calculate, or to sell. But some assets aren't very valuable when sold. (e.g. if Bitpay or bitcoin fails, its bitcoin payment processing software or its bitcoins will have little resale value. So for Bitpay, revenues are the big factor).

So let's look at Bitpay, they've recently stated in a developer presentation that they process about 1-2m a day. Say 500m a year. They also made public they grow at about 10% a month, which is equal to Coinbase, Blockchain.info and Multibit for example, so it's a very reasonable number. We can also say they take 1% as fees like Coinbase does.

So their revenues are 5m annually, today, and their growth rate is 3x annually. So for the next 5 years that's 5m, 15m, 45m, 135m, 405m.

See now where the 160m valuation comes from? Of course, this is a very rough calculation. For example, they make less than 1% in fees to be exact, it's probably closer to 0.75%. Their 3x growth per year is of course impossible to continue indefinitely, it may slow to 2x or even 1.5x at some point. And I haven't applied the discount rate yet (which isn't huge, by the way), nor the risk that bitcoin fails. (but then, it is *venture* capital). If you value a company on its 10-year revenue stream like is often done, 160m is a very realistic rate.

Now, let's be clear, Bitpay didn't make this valuation by itself. You've got a number of silicon valley / entrepreneurial legends turned investors (top-ranking ones) who offered to buy close to 20% for 30m. THAT is the valuation. These VCs made the valuation. Now you can say it's ridiculous without any arguments, but if I'd have to guess, I'd probably side with the VCs. They're self-made. Not by a single stroke of luck, but by series of successful companies and successful investments. You can be assured they've done their homework.

I'm not versed in how all this VC funding works, but is it possible for an entity to state that they're funding $X, but in reality are not, hoping/knowing that a true source with deep pockets will come along, saying to themselves, "If that entity is in for $X, I'm in for $Y."? Thus, now there's real money, namely $Y, to use for operating, development, pool parties naked by the hot tub, etc. And, not just $Y, but other venture capitalist don't want to be left out of making bank, so they, too, join the flock pumping in $Zs.

[niniyo]

A company's valuation is based on discounted expected future earnings.  With bitpay you have to look at how much will they be earning next year, then the next, then the next?  We already know that their revenues grew 10x last year.  We've also heard that BitPay is presently making buckets of profit.  Bitcoin hasn't even began to hit consumer adoption yet, so if the trend continues then there should be many years worth of exponential growth with a high profit margin.

[LiteCoinGuy]

A company's valuation is based on discounted expected future earnings.  With bitpay you have to look at how much will they be earning next year, then the next, then the next?  We already know that their revenues grew 10x last year.  We've also heard that BitPay is presently making buckets of profit.  Bitcoin hasn't even began to hit consumer adoption yet, so if the trend continues then there should be many years worth of exponential growth with a high profit margin.

exactly  


http://indexventures.com/news-room/blog/payment-without-borders-why-we%E2%80%99re-backing-bitpay

[MrBitHero]

A company's valuation is based on discounted expected future earnings.  With bitpay you have to look at how much will they be earning next year, then the next, then the next?  We already know that their revenues grew 10x last year.  We've also heard that BitPay is presently making buckets of profit.  Bitcoin hasn't even began to hit consumer adoption yet, so if the trend continues then there should be many years worth of exponential growth with a high profit margin.

Exactly. Some numbers:

Bitpay processes about 500m a year. Their revenue is probably about 0.75% of that, or say roughly 4m.

They have 40k merchants now and they add more than 1k every week. They growth is about 10% monthly, or 3x annually.

In other words, if you imagine their growth rate continues for 5 years, their revenues are 4m, 12m, 36m, 108m, 324m.

Then add another 5 years of slower growth, and apply a discount rate to that. It's quite easy to see why a 160m valuation isn't ridiculous at all.

[MrBitHero]

I'll add some comments about business valuation.

Say I've got a money-tree (like a goldmine with a certain reserve of gold) that pays out $100 every year for 10 years. How much would you pay for it? Well, the lifetime revenue is $1000. But you wouldn't pay $1000, because of the time value of money. $100 in 1900 is worth only $2 today due to inflation of prices, for example. When you have $100 today and accrue interest for 10 years, it's worth a lot more than getting $100 in 10 years. So there's some 'discount rate' every year, so the money-tree might only be worth say $750. The rate depends on many factors, it's just an example.

This is roughly how companies are valued. You look at revenue streams and discount them over some time and then pay for that, minus some risk factor that the company fails. In addition, you may pay for various assets, but sometimes they can be a small factor. After all, assets are only valuable to generate revenue which you already calculate, or to sell. But some assets aren't very valuable when sold. (e.g. if Bitpay or bitcoin fails, its bitcoin payment processing software or its bitcoins will have little resale value. So for Bitpay, revenues are the big factor).

So let's look at Bitpay, they've recently stated in a developer presentation that they process about 1-2m a day. Say 500m a year. They also made public they grow at about 10% a month, which is equal to Coinbase, Blockchain.info and Multibit for example, so it's a very reasonable number. We can also say they take 1% as fees like Coinbase does.

So their revenues are 5m annually, today, and their growth rate is 3x annually. So for the next 5 years that's 5m, 15m, 45m, 135m, 405m.

See now where the 160m valuation comes from? Of course, this is a very rough calculation. For example, they make less than 1% in fees to be exact, it's probably closer to 0.75%. Their 3x growth per year is of course impossible to continue indefinitely, it may slow to 2x or even 1.5x at some point. And I haven't applied the discount rate yet (which isn't huge, by the way), nor the risk that bitcoin fails. (but then, it is *venture* capital). If you value a company on its 10-year revenue stream like is often done, 160m is a very realistic rate.

Now, let's be clear, Bitpay didn't make this valuation by itself. You've got a number of silicon valley / entrepreneurial legends turned investors (top-ranking ones) who offered to buy close to 20% for 30m. THAT is the valuation. These VCs made the valuation. Now you can say it's ridiculous without any arguments, but if I'd have to guess, I'd probably side with the VCs. They're self-made. Not by a single stroke of luck, but by series of successful companies and successful investments. You can be assured they've done their homework.

I'm not versed in how all this VC funding works, but is it possible for an entity to state that they're funding $X, but in reality are not, hoping/knowing that a true source with deep pockets will come along, saying to themselves, "If that entity is in for $X, I'm in for $Y."? Thus, now there's real money, namely $Y, to use for operating, development, pool parties naked by the hot tub, etc. And, not just $Y, but other venture capitalist don't want to be left out of making bank, so they, too, join the flock pumping in $Zs.

Yes and no.

First of all, VCs do a lot of research and they employ a legal and financial team to review the company and audit the company. This will show whether there were actual investments or not. It's very difficult to fool a VC that you have more money than you do from investments, as the financial books are audited by an independent party commonly like Goldman Sachs or something.

Secondly, some VCs are actually very clever. If they see lots of dumb money going into the company they'll say two things quite often. 1) There's too much money, no substance. This company has more money than it needs and, as every person with too much money, will spend it on unnecessary things. So if you invest even more, guess what, your money is going to unnecessary things that startups should stay away from. And 2) They'll see that where the company was worth X, pre-interest it cost say X, but after all the hype, it costs 2X even though it's still only worth X. In other words, when a company is really hyped up, it's often too late for the VC investment. For example, Bitpay was probably a bargain when it only had 2.7m and little interest from VCs, but now with 33m in funding from top dogs, it's going to be expensive to buy. And VCs don't like that.

Thirdly, VCs do their own research and run numbers. A lot about valuation is mathematics on projected revenues, or some strategic advantage (e.g. Yahoo buying a mobile company to move to mobile more), and they don't change when a company has a ton of interest from VCs. It's still got the same projected revenues so the valuation is more or less the same. But if a VC wants to invest, and then blow it off, that's often a signal to other VCs that the projected revenues were wrong, or the company wasn't that great after it was audited.

But finally, yes, yes of course. VCs are humans, and if they see everyone try to get in on it, they'll probably pay a higher price. But the effect isn't as big as one might think. VCs are a lot more aware of herd-mentality since the dot com bubble, but they're not perfect.

[LavaWave]

Frankly I don't see anything wrong with the valuation. BitPay is a leader in its space and as others have said before me, this valuation may look ridiculously low in a year or two from now. Using the Beats as an example with its rumored sale to Apple, the valuation for that company back in September was $1 billion dollars after the Carlyle Group purchased 50% of the company for $500 million. Now Apple is supposedly buying them for $3.2 Billion a whole 8 months later.

http://www.fool.com/investing/general/2014/05/11/apples-potential-32-billion-deal-works.aspx

VC's, Hedge Funds and other accredited investors aren't in the business of losing money! JMHO 

[Crindon]

The valuation is way off. It is nowhere near 160 million. At the very most multiplying their profits by ten would take it to $10 million. Raising capital doesn't count as sales or gross profit, so it isn't really something to be factored into the valuation.

[bryant.coleman]

The valuation is way off. It is nowhere near 160 million. At the very most multiplying their profits by ten would take it to $10 million. Raising capital doesn't count as sales or gross profit, so it isn't really something to be factored into the valuation.

Let's compare Bitpay with Ebay. For Ebay, the operating profits are near $2.85 billion. Its market cap is 65.84 billion. The P/E ratio is more than 23. Now look at Bitpay. The business is growing at a rapid pace, and profits are expected to touch $10 million per year by the end of 2014. So, I think that a valuation of $160 million is fair.

[MrBitHero]

The valuation is way off. It is nowhere near 160 million. At the very most multiplying their profits by ten would take it to $10 million. Raising capital doesn't count as sales or gross profit, so it isn't really something to be factored into the valuation.

Let's compare Bitpay with Ebay. For Ebay, the operating profits are near $2.85 billion. Its market cap is 65.84 billion. The P/E ratio is more than 23. Now look at Bitpay. The business is growing at a rapid pace, and profits are expected to touch $10 million per year by the end of 2014. So, I think that a valuation of $160 million is fair.

Where did you get their profits? They've reported more than 1m in daily revenue processing, say it's 1.35m per day that's 500m per year.

Their most expensive processing option is 1%. Their cheapest is 0.01% (pay 1$ or $10 a day to process $10k or $100k respectively).

Let's be generous and say they average 0.80%. That means they take $4m in revenue a year. How much of that is profit? Well, Amazon has 0.35% profit margins in 2013, for example. Who knows, but I'd say 10% would be very generous. So let's say 10%. That means they take 0.4m in profit.

Or look at something else, their team. They have about 35 employees and they're a software company in a competitive space. Software engineers easily make 100k, for Silicon Valley often 200k. And that's just salary. For every employee you then pay various expenses like taxes, healthcare, meal plans, software/hardware, office space, training etc etc. To say the average cost per employee is $100k would again be pretty generous for a typical software company. So that puts their employee costs at 3.5m already and we haven't even begun looking at their cost of liquidating bitcoin, making bank transfers to merchants or any of the server infrastructure they're built on.

So 10m annual profits for 2014 I think is a complete joke. But that doesn't mean the valuation is wrong. I think 160m is a very normal valuation if you look at Bitpay's numbers today, their growth rate, the prospects of the market and apply a discounted cash flow model to that. Guess what, Richard Branson and Peter Thiel have done valuations before.

[DeathAndTaxes]

Guess what, Richard Branson and Peter Thiel have done valuations before.

/thread.

It is worth whatever someone is willing to pay for it and people were willing to pay it.  Now Branson and Thiel may have massively overpaid as concluded by armchair investors who have never written a million dollar check before but I doubt it.

[NotAtOld]

Ridiculous compared to, say, a company called Nest, that just sold for $3.2 billion? They make fancy thermostats, haven't sold very many of them. Or Tesla, valued the same as GM. Tesla has sold as many cars since they were founded in 2010 as GM sells every day of the year including weekends. And Tesla lost $1 billion doing it, after receiving hundreds of millions in green handouts. $160M for Bitpay? It's a steal.

[bryant.coleman]

Ridiculous compared to, say, a company called Nest, that just sold for $3.2 billion? They make fancy thermostats, haven't sold very many of them. Or Tesla, valued the same as GM. Tesla has sold as many cars since they were founded in 2010 as GM sells every day of the year including weekends. And Tesla lost $1 billion doing it, after receiving hundreds of millions in green handouts. $160M for Bitpay? It's a steal.

Intelligent people invest in companies and ventures, which are having the maximum potential to grow and expand their business. When I say intelligent, I mean innovative people such as Richard Branson, and not old school investors like Warren Buffet.

[TheTruth4]

GoCoin, founded by Brock Pierce, was able to obtain $500,000 USD of VC capital from their two(?) bedroom home/office above a restaurant in Singapore, with 95% of its customer base residing in the US. Surely, BitPay is worth six times that.

[keithers]

Please, bitpay is a pioneer in a virgin market that will likely be worth billions of dollars
Maybe fundamentally too high, but certainly not if you look at how valley VCs gauge potential and allocate capital

True, but the barrier to entry is low.  It will possibly be a very crowded space.  Does bitpay have anything innovative?

They have grown to the point, where name recognition alone is enough to make up for some lack in innovation.   When you think of merchant services (in regards to BTC), the two names that basically come to mind (for me at least), are Bitpay and Coinbase.

Has anyone done an independent valuation of Coinbase?