Valuation Bubble – I don’t get it

I saw today that Pinterest got valued at $3.8 Billion while raising the latest round of $225M. With this the total funding is $564M. Just a minor point – they have zero revenue so far! How does one explain this?

Pinterest brings together people with common interest in collectibles. The number of users reported by official sources is around 34M, but some unofficial sources claim it is near 50m. To be fair to them, they have not tried for serious monetization yet. Only recently they have started some pilot advertising. I am sure it’s a great company with good technology and mass appeal. Ben Silberman, the founder CEO is a great entrepreneur and leader. But the valuation seems insane.

Contrast this to enterprise software companies such as MongoDB which had a recent valuation of $1.2B. They have many active customers (revenue) and users and are solving some serious business problems with their NoSQL database technology. When it comes to enterprise software, the valuation seems to rest on current revenue plus potential growth. But the consumer-oriented companies go by eyeballs mostly with a hope and prayer that big money will start coming in as revenue some day.

Pinterest has raised so much money that they will be safe for next 3-4 years irrespective of what happens to the stock market and subsequent valuations. Fidelity investment lead this round and they don’t seem to care, unlike the VC community which does much more due diligence on their investments.

Do we see another bubble in the making? Scary!

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