Explain This To Me

That’s how the emails generally start. “Fred, explain this to me”.

I got a bunch of them yesterday pointing to the reported $100mm valuation being placed on Geni.com in it’s recent financing.

Things like this are not explainable to be honest. This may turn out to be an incredible investment for the venture firms that made it. Or maybe it won’t. Only time will tell.

Today Geni.com is a really neat idea expressed in a service that has only recently launched. It is a social network for genealogy. And it may well be a way to create a social network for everyone in the world because everyone is related to everyone else if you go back far enough (or maybe not). But you get the idea. I am half tempted to fill out my family tree on Geni.com. And I am sure that many millions of people will ultimately join one or more of these genealogy services (yes there are a bunch more coming).

But as many of the people sending me emails pointed out, this blog has more traffic and unique users than Geni.com according to Alexa and Compete.

Geni_vs_avc_1

Does this matter? Yes and no. It will surely matter in time. Geni had better pass this blog in short order. But if you paid $100mm for Google before it had 20,000 unique visitors per month, you’d have made a fortune. Maybe the same will play out with Geni.

Does a $100mm valuation on a website with less traffic than this blog mean we are in a bubble? Of course we are in a bubble in the web technology venture business. We have been in one for several years now. Hot sectors always attract money. And we are awash in money.

But that doesn’t mean you can’t make money investing in a bubble. And I am not talking about the “buy high, sell higher” mentality which always ends badly. Let’s look at Google again. The venture investments in Google were made during the last bubble. And they paid off beyond anyone’s bubble driven aspirations at the time they were made.

You can make money in the venture capital business in any market if you pick the right companies. Valuation matters too. But this is not a sale transaction. Geni’s shareholders didn’t get $100mm, they simply did a deal where they raised $10mm for 10% of the company.

Only time will tell if the investors in Geni.com have picked a winner and paid the right price. And that is exactly as it should be.