..

[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.