First, let me congratulate you on an excellent site and a very strong stable of writers.

As to private vs. public market valuations, I think one point hasn’t been mentioned yet – the manipulation of what I’ll call “apparent market cap” by VCs.

In my mind, reported “market cap” really translates into “market crap”.

Even in the public markets, market cap can be extremely misleading because it suggests that a given company is worth, in toto, the total number of shares outstanding times the last share price paid – *regardless* of the *size* of that share purchase.

But it is one thing to find a buyer(s) for 100 shares – it quite another to find buyer(s) for 100 million.

But the dominant media image (carefully cultivated by market insiders, be they Sand Hill VC or Wall Street) is that “market cap” is somehow real/inviolate and utterly indicative of real economy significance (ignoring revenue, net income, etc.).

This makes the system *much* easier to game by the insiders, since they can create news events/price spikes through the choreographed purchase of a small number of shares.

At least in the public markets, there is *some* push-back against insider hype due to short sellers (although they are constrained in ways that the “upside artists” are not).

But in the *private markets* that VCs inhabit/manipulate, there is a very, very, very carefully choreographed stair-step pattern of upward value manipulation through successive rounds – all in anticipation of the big IPO blow-off to retail bag-holders – the retail investors.

Of course, the attempted price manipulation by VCs doesn’t always work – it often doesn’t, that is why down-rounds can be a death-knell.

But in *hot* startups, successive rounds are very carefully choreographed, even, especially, as to the point of absurdly spiking market cap (which draws the media attention needed for the blow-off to retail) through comparatively small purchases of shares (percentage-wise).

Again, it is one thing to say Facebook is worth $100 billion because .01% sold for $10 million (higher than the normal VC kabuki actually) and quite another to try and round up enough dumb money (retail investors and brain-dead institutions) to sell 25% (still nowhere near an actual 100%) for $25 *billion*.

The former is stage-managed manipulation (and 99% of VC kabuki takes place at much lower numbers than Facebook) while the latter is nation-straddling market hyping. Their relative probability of success differs tremendously.

The private exchanges were initially embraced by VCs because they *aided* the VC hype process by publicizing essentially illusory market cap numbers (lets call them “market crap numbers”).

Go back and look at the puny volumes traded on those private exchanges – then compare those numbers to what Facebook tried to sell at IPO – then gird your loins to look at the shares coming (post multiple lockups and full dilution).

So Facebook was worth $100 bazillion because some largely hidden buyer on ShadowMarket.com paid $X for .0000000000000000001% of the company?

Really?

Yes, the private secondary markets have painted VCs into a corner *but* it is a monster of their own manipulative creation.

Look for a return to old school intra-VC stair-stepping rounds – where the market manipulation can be tidier and infinitely more hidden.

where is the link that takes us beyond the paywall. Can you share?

I agree to some extent but most of it is also over-the-top valuations offered by the clueless is now coming back to roost. Basically the private markets never really want to deal with the reality: a company eventually has to grow into its valuation and has to become a business. It is what is happening right now.