VCs - Thursday, April 10, 2008 10:00 - 0 Comments

Step 1 On Path To Liquidity - Make Stuff People Buy

From AVC: We Need A New Path To Liquidity

Fred spins a fine post about the lack of liquidity in the marketplace these days.  No new ground covered here in that regard, but he does have some good commentary about the destruction of value by some of the better known acquirers in the tech space.

What seems to be lost on so many people these days is that M&A is spawned, in most rational cases, from a perception of synergy and accretion to the shareholders.  The short version on accretion is that you buy something for less than your shareholders will value it, thereby pushing up your stock price, and making everyone happy.

Of course, there is also dilution, which has the opposite effect.  The most recent and notable being YouTube.  Paying $1.5 BILLION for something with no discernible revenue/profit piece is highly dilutive to shareholders.  What Fred and every other VC seems to be missing these days is an age old concept of profit.

Make something that people buy, and your enterprise value goes up.  It’s really simple, but the rah rah bubble 1.0 days seem to have left an indelible impression that making money is no longer important.  Everyone wants to build a social network or ad network, or some other kind of network.  How about a profit network?  Just a thought…