Irrational valuations still exist, especially in the private market thanks to more than a decade of easy Fed policy. 2023 will be the year that venture firms write down portfolio valuations if they have not done so already.
- We wrote about OpenAI’s natural language offering – ChatGPT – last week. For what it’s worth, OpenAI isn’t the only natural language company in town. Google, Microsoft, Amazon, Apple and a number of other companies have natural language/ deep learning capability with Google’s DeepMind (acquired in 2014), being the most impressive.
- OpenAI is on pace to generate 2023 revenue somewhere north of $200 million and 2024 revenue of approximately $1 billion if you believe the company. Apparently Thrive Capital and Founders Fund are in the process of acquiring OpenAI equity that would value the company at approximately $29 billion.
- If a venture firm were to invest at that valuation it would demonstrate that the venture firm in question cares more about being associated with a hot deal than driving ROIC.
- I don’t know what OpenAI generated for revenue in 2022. Therefore it is difficult for me to determine how aggressive the $200 million 2023 revenue estimate may or may not be. However, to grow 2024 revenue by 5x over 2023 is obviously aggressive. Even if OpenAI hit the $1 billion revenue mark in 2024, why would I agree to pay 29x 2024 revenue and 145x 2023 revenue in order to participate in this deal? Contrast OpenAI’s crazy valuation with the public markets where the IPO window is closed.
I predict that 2023 will be the year where many venture firms will be writing down their portfolios and entrepreneurs will be writing down the value of their equity.