I am so tired of reading about the financial valuations of technology and social media start-ups. What interests me the most is what I can do with the technology or services not how much a company could sell for *if* it were on the market or auction block.

Put any one the popular sites up on eBay or the auction block, I just about guarantee the company will not sell for their valuation price. Far less is my guess.

The fact of the matter is if a company is turning a profit, you will not see it going up for sale any time soon. Those that are talking about or getting a lot of press about their *valuations* are often troubled companies or venture capitalists looking for a profitable way out of a bad business model.

I am no stranger to selling websites. My last website sale was to Jupiter Media about three years ago, and it was not for millions of dollars either. The deal was struck based on current and future earnings. Income was what mattered, not the number of users or number or page views each month. What I was earning (ten times earnings) from the site each year was what made the deal work. Over the years, I have sold several popular and profitable sites. Of course, these sales did not garner a lot of press coverage because the deal wasn’t some un-godly amount of money or wasn’t funded by a group of super-rich venture capitalists (a story for another day).

I have wondered of late exactly how analysts come up with valuations for companies such as Digg, facebook, Yelp and others. I understand that a good bit of the value comes from advertising income, number of users, etc. However, I also know that many of these sites are extremely tight-lipped (i.e Digg.com) about such things, so I assume that many of the industry analysts only see the amount of money being pumped into these companies and not the actual profits being made. Best guesses do not cut it on the auction block or in the backroom where a deal is being made. Income versus expenses and profitability is what matters.

I personally do not believe much of what I read about how much some of the technology companies and industry analysts claim they are worth. I am not so sure very many other people believe it either. I think it is more of an ego booster for company executives and VC’s than anything else.

With the current state of the economy, I simply cannot believe the money VC’s are pushing into some of the technology ideas that have been in the press lately. Who knows, maybe they are looking for tax write-offs. Either that or their egos and wallets have exploded.

And lastly, why do things such as facebook creating multiple tabs in user profiles get front page press? It is just a feature enhancement to appease user discontent. It is not anything new or unique, all websites revamp from time to time. I for one would prefer to hear about a brand new feature that no one else is doing than “hey facebook has multi tabs now” news coverage.

RELATED

Facebook gets more orderly: Multi-Tab for profiles (TechCrunch)

Yelp raises $15 Million fourth round, rumored valuation $200 Million (TechCrunch)

As always, I enjoy reading and replying to your comments!

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